Bond Markets

Already in chapter 1 we gave a prelude of the bond markets and the main functions of the primary and secondary markets. We also identified the interested parties such as the investors, the issuers and the intermediaries. In Chapter 2 we briefly mentioned some of the bond types and their main characteristics. However, we still have to understand which the bond markets are and what the products traded there are. Furthermore, the bond markets have evolved through the years and even though traditional fixed income securities have always attracted interest, there have been other products that have come to the forefront. Fixed income products have increased significantly not only as far as the total outstanding face value or market value is concerned but also in terms of the different types of securities as well as the types of markets. They have therefore attracted the attention of the regulators that attempt to set up a more standardized and rigorous framework for the operation of bond markets, similar to that of the stock markets. In this chapter we look at the fixed income markets, with a fresher look, addressing also contemporary trends. We do not ignore though traditional issues, starting from the money market and going to the bond market. We present the different products that are traded in these markets and explain the way they operate. This chapter exposes the reader to the details of the markets at which bonds are traded.

Authors and Affiliations

1. Department of Economics, Democritus University of Thrace, Komotini, Greece

   Thomas Poufinas

Corresponding author

Correspondence to Thomas Poufinas .

Exercises

7.1.1 Exercise 1

1. a.

   In what ways are the bond markets different from the equity markets?

2. b.

   What is the perceived problematic around the bond markets?

3. c.

   What are the efforts that the regulators pursue?

4. d.

   How can ITC assist?

5. e.

   What issues are difficult to overpass?

7.1.2 Exercise 2

1. a.

   Explain the differences between the different money market instruments/markets. Look at the way they operate today.

2. b.

   What market/ instruments would be more suitable for a retail investor?

3. c.

   What market/ instruments would be more suitable for an institutional investor?

4. d.

   What performance/return do they post these days (2021)? Why?

7.1.3 Exercise 3

1. a.

   What is the contribution of electronification in the bonds markets?

2. b.

   What is the contribution of the existing and upcoming regulation in the bonds markets?

3. c.

   What changes/advances are there still to come?

7.1.4 Exercise 4

Compare the yield to maturity of the government bond issues in the Eurozone, the US, the UK and Japan.

1. a.

   What do you observe?

2. b.

   How are the differences explained?

3. c.

   What choices does an investor have to overcome the low or negative yields?

(Hint: you can refer to other chapters as well).

7.1.5 Exercise 5

Repeat exercise 4 for corporate bonds and municipal bondswhere available. You may need to do some research on your own to find the relevant yields.

1. a.

   What do you observe for the different countries?

2. b.

   How do the corporate bond yields compare with the government bond yields of the same country?

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