Bond Market Trading is carried out through electronic trading networks which are well organized. In Capital Market parlance the process of Bond Market Trading is termed as over-the-counter (OTC). The Bond Market Trading procedure usually comprises of two distinct segments, one where the bonds are issued and sold by the companies in need of borrowing capital and then the second where the lenders (investors) trade the bonds that were issued previously, amongst themselves.
As per the procedure of Bond Market Trading stated above, all kinds of Bond Market can be divided in to :
Primary Bond Market - the debt securities are issued besides being sold by the borrowers (companies in need of capital) to the lenders.
Secondary Bond Market - the lenders trade bonds issued previously amongst themselves.
Public Companies which are in need of capital for business purposes allow and encourage private investors to participate in the Bond Market Trading through the following debt securities:
Bond Funds,
Closed-end Funds
Unit-investment Trusts.
However for those who are not in favor of participating directly in the processes of Bond Market Trading by buying and therefore investing in a bond issued by investment companies in the Bond Market there is an alternative procedure. Investors can get the better of the immense first and progressive Bond Market Trading processes through a specific type of bonds which are known as ETFs or Exchange-Traded Funds.
The Bond Market Trading in the Primary Bond Market is carried out with the bonds sold to prospective investors at first, who then trade those bonds in the Secondary Bond Market. Each bond comes with a particular price tag (known as its Face Value) along with a coupon that allots a certain percentage of yield or return upon the Face Value of that bond, this yield is customarily rewarded to the bondholders at the end of a fiscal.
The annual yield (which is calculated upon the actual price of a bond) remaining the same, the prices of
bonds fluctuate in the Bond Market. This implies that the price of the bond and annual are inversely
related, that is, when the price of a bond goes up the percentage yield upon it is reduced and vice
versa.