What is the bond market?

The bond market is where participants buy and sell debt securities, usually in the form of bonds. Other names include the debt market, credit market or fixed income market.

Bond markets in most countries remain decentralized and lack common exchanges like equity, future and commodity markets. This has occurred, in part, because no two bond issues are exactly alike, and the number of different securities outstanding is far larger. Although there are some electronic exchanges emerging, the vast majority of bond trades continue to be conducted directly between market participants without a facilitating market utility i.e. they are conducted over the counter (OTC). Market liquidity is provided by dealers and other market participants.

Within the fixed income markets, dealers do not charge brokerage fees. Instead they earn revenues based on the difference between the price at which the dealers buys a bond from one investor (the bid price) and the price at which they sell the same bond to another investor (the ask or offer price). The so-called bid/offer spread represents the total transaction costs associated with transferring a bond from one investor to another.