Bond market is a financial market where buying and selling of bonds takes place. These bonds can be govt. bonds or bonds issued by private limited companies. Bond Market facilitates fund raising by bringing together the investors and the issuers of bonds who require capital for their business expansion or for regular business operations.
It does not operate through any exchange unlike stock market. As no two bonds are exactly alike, bond markets are decentralized and there is no common platform. Trading in the Bond Market is operated through electronic trading networks. Though the Stock Exchanges and the Stock Market always remain in news; the Bond Market is much bigger than the Stock Market.
It is classified into two markets. One is primary market and another is Secondary Market. In Primary Market, govt. debt securities that is govt. bonds and corporate debt securities that is corporate bonds are issued traded between borrowers and lenders. In Secondary Market, existing govt. bonds and company bonds, which were issued earlier, are traded between investors.
Each bond available in the bond market comes with a maturity date. When the maturity period is over, the bondholder receives principal and interest according predetermined rates. But if a bondholder wishes to sell his bonds before completion of maturity period, his expected returns are subject to market risks. The risk generates from the fact that value of existing bonds fall when interest rate rises in the economy and the value of bonds raises when the interest rates falls.