The bond market is much larger than the equity stock market and has its own set of standards by which its fundamentals are analyzed. It deals in debt securities with a fixed income potential, but exposes the investment to a much lower risk as compared to equity stock investment.
Today a large number of retail investors avoid the bond market for a number of reasons, ranging from the low returns that bonds offer to general misunderstandings of the market itself.
Over much of the first half of the 20th century, bond markets worldwide, spanning most of the advanced economies of the time, did not do well at all. This was a time of great turmoil in the world, which was ravished by two world wars within the period of 20 years. In Germany, the market was literally wiped out during hyperinflation after World War I and World War II. In fact, in 1922-23, the inflation rate went haywire to an absurd 209,000,000,000 %!
The Great Depression in the United States impacted the bond market with disastrous consequences, although it was mainly confined to government bonds.
Corporate bonds on the other hand, managed to perform better due to their flexible approach toward risk and returns. It is estimated that the international market for bonds is worth over USD 45,000 billion with the US bond market accounting for over four-fifths.
Bond markets are not as well organized as equity stock markets, and are mainly traded over the counter, though certain corporate bonds are traded in securities exchanges where they are listed.
Their unorganized nature is mainly because of the level of difference between bond issues, which is not helpful in the establishment of a common market.
The Bond Markets
Bonds market can be classified into the following segments:- Government
- Asset-backed
- Corporate
- Municipal
- Financing
The Indian debt security market comprises of corporate and government bonds, of which government bonds are dominant. Maximum liquidity in Indian bonds could be found in bonds issued by the central government. The NSE - GOI (National Stock Exchange-Government of India) Bond Index presents the performance of all outstanding GOI bonds.
