http://en.wikipedia.

org/wiki/Bond_market
Bond market

The bond market (also known as the debt, credit, or fixed income market) is a financial
market where participants buy and sell debt securities, usually in the form of bonds. As of
2009, the size of the worldwide bond market (total debt outstanding) is an estimated
$82.2 trillion,[1] of which the size of the outstanding U.S. bond market debt was $31.2
trillion according to BIS (or alternatively $34.3 trillion according to SIFMA). [1]

Nearly all of the $822 billion average daily trading volume in the U.S. bond market [2]
takes place between broker-dealers and large institutions in a decentralized, over-the-
counter (OTC) market. However, a small number of bonds, primarily corporate, are listed
on exchanges.

References to the "bond market" usually refer to the government bond market, because of
its size, liquidity, lack of credit risk and, therefore, sensitivity to interest rates. Because of
the inverse relationship between bond valuation and interest rates, the bond market is
often used to indicate changes in interest rates or the shape of the yield curve.

Types of bond markets

The Securities Industry and Financial Markets Association (SIFMA) classifies the
broader bond market into five specific bond markets.
Corporate
Government & agency
Municipal
Mortgage backed, asset backed, and collateralized debt obligation
Funding
[edit]
Bond market participants

Bond market participants are similar to participants in most financial markets and are
essentially either buyers (debt issuer) of funds or sellers (institution) of funds and often
both.

Participants include:
Institutional investors
Governments
Traders
Individuals

Because of the specificity of individual bond issues, and the lack of liquidity in many
smaller issues, the majority of outstanding bonds are held by institutions like pension
funds, banks and mutual funds. In the United States, approximately 10% of the market is
currently held by private individuals.
[edit]
Bond market size

Amounts outstanding on the global bond market increased 10% in 2009 to a record $91
trillion. Domestic bonds accounted for 70% of the total and international bonds for the
remainder. The US was the largest market with 39% of the total followed by Japan
(18%). Mortgage-backed bonds accounted for around a quarter of outstanding bonds in
the US in 2009 or some $9.2 trillion. The sub-prime portion of this market is variously
estimated at between $500bn and $1.4 trillion. Treasury bonds and corporate bonds each
accounted for a fifth of US domestic bonds. In Europe, public sector debt is substantial in
Italy (93% of GDP), Belgium (63%) and France (63%). Concerns about the ability of
some countries to continue to finance their debt came to the forefront in late 2009. This
was partly a result of large debt taken on by some governments to reverse the economic
downturn and finance bank bailouts. The outstanding value of international bonds
increased by 13% in 2009 to $27 trillion. The $2.3 trillion issued during the year was
down 4% on the 2008 total, with activity declining in the second half of the year.

[3]
[edit]
Bond market volatility

For market participants who own a bond, collect the coupon and hold it to maturity,
market volatility is irrelevant; principal and interest are received according to a pre-
determined schedule.

But participants who buy and sell bonds before maturity are exposed to many risks, most
importantly changes in interest rates. When interest rates increase, the value of existing
bonds fall, since new issues pay a higher yield. Likewise, when interest rates decrease,
the value of existing bonds rise, since new issues pay a lower yield. This is the
fundamental concept of bond market volatility: changes in bond prices are inverse to
changes in interest rates. Fluctuating interest rates are part of a country's monetary policy
and bond market volatility is a response to expected monetary policy and economic
changes.

Economists' views of economic indicators versus actual released data contribute to

market volatility. A tight consensus is generally reflected in bond prices and there is little
price movement in the market after the release of "in-line" data. If the economic release
differs from the consensus view the market usually undergoes rapid price movement as
participants interpret the data. Uncertainty (as measured by a wide consensus) generally
brings more volatility before and after an economic release. Economic releases vary in
importance and impact depending on where the economy is in the business cycle.
[edit]
Bond market influence
Bond markets determine the price in terms of yield that a borrower must pay in able to
receive funding. In one notable instance, when President Clinton attempted to increase
the US budget deficit in the 1990s, it led to such a sell-off (decreasing prices; increasing
yields) that he was forced to abandon the strategy and instead balance the budget. [4][5]“
I used to think that if there was reincarnation, I wanted to come back as the
president or the pope or as a .400 baseball hitter. But now I would like to come back as
the bond market. You can intimidate everybody. ”

— James Carville, political advisor to President Clinton, Bloomberg [5]

[edit]
Bond investments

Investment companies allow individual investors the ability to participate in the bond
markets through bond funds, closed-end funds and unit-investment trusts. In 2006 total
bond fund net inflows increased 97% from $30.8 billion in 2005 to $60.8 billion in 2006.
[6] Exchange-traded funds (ETFs) are another alternative to trading or investing directly
in a bond issue. These securities allow individual investors the ability to overcome large
initial and incremental trading sizes.
[edit]
Bond indices
Main article: Bond market index

A number of bond indices exist for the purposes of managing portfolios and measuring
performance, similar to the S&P 500 or Russell Indexes for stocks. The most common
American benchmarks are the Barclays Aggregate, Citigroup BIG and Merrill Lynch
Domestic Master. Most indices are parts of families of broader indices that can be used to
measure global bond portfolios, or may be further subdivided by maturity and/or sector
for managing specialized portfolios.

………………………………………………………………………………

http://www.oppapers.com/essays/Bonds-Market-In-Pakistan/238750
Bonds Market In Pakistan

Abstract: Bond market development has now gained priority in fostering financial sector
growth in all economies whether developed or developing. Asian and Mexican crises
have given a clear message that this market, falling between equity and bank finance,
needs proper attention failing which investment climate within these countries would
remain under threat. With this perspective, the paper has been drafted highlighting
Pakistan’s economic conditions, its financial market architecture, securities market
structure with its status, issues, and reforms in hand and then finally proposing future
agenda.
Role of the Central Bank / Government in Developing Bond Market:

Government is very keen to develop Capital Market in Pakistan. SBP and SECP, the two
main regulators of the whole financial system are bringing about reforms for the
development of capital market of the country in conjunction with GOP support. Recently
the main efforts made in this direction can be summarized as under:
Capital adequacy requirements have been raised for the participant institutions.
T+3 system has been introduced to make the system efficient. T+0 is already in vogue for
Government Securities.
Badla Financing has been replaced with Continuous Financing System (CFS) with
restriction on In-House CFS to curb speculative business in equity. Trading systems for
Corporate Bonds and Risk mitigating mechanism are in phase of development.
Derivative instruments have been introduced and their further development is on agenda.
The automation of SBP, Banking industry, Non-banking Financial Companies and stock
exchanges are at full swing.
RTGS system is in wake of Implementation. Legislation on Payment system and Future
Trading is in process of finalization at the level of GOP.
New Government Securities Act to replace Public Debt Act 1944 for Government
securities is under finalization. Further new Act for Corporate Securities to replace
Securities and Exchange Ordinance 1969...

………………………………………………………………………………..