Basic information about bonds
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Name: Nguyen Hoang Phuong Linh - 10190547
FIRM INSTITUTIONS AND MARKETS
Topic: Select one type of financial market (or organization) and write a short report
about that financial market.
This year will be set apart in history by a pandemic that affected worldwide wellbeing and financial action to people and countries worldwide. In money related
business sectors, the impacts of the epidemic incited a rollercoaster of unpredictability
that feature the essential part of securities in speculation portfolios.
1. The definition of the bond market
A bond market is defined as a financial market where participants can issue new
debt. It is also known as the debt market, credit market, or the primary market.
Participants in this market can buy and sell debt securities. According to James Chen
(2020), the bond market is the aggregate name given to all exchanges and issues of
obligations protections. The bond market is also explained as a market where the
products are bonds (Nhi T., 2019).
2. Types of bonds
There are various types of bonds. They can be distinguished from who issues them,
the length until maturity, interest rate, and risk.
First of all, the safest bonds are Government bonds, also known as a sovereign bond.
According to Wikipedia, these bonds are government obligation instruments gave by a
national government to fund government spending as an option in contrast to tax
collection. In a foreign currency or the government's domestic currency, the government
can be dominated (Chen J., 2020). James Chen (2020) said that governments do not
enjoy luxurious to issue bonds denominated in domestic currency. The lower the
stability of a currency denomination, the higher the risk transformation that
bondholders.
The second one is the Municipal bonds, commonly known as "muni" bonds.
According to Thebalance.com (2020), cities and localities usually are one's issues
municipal bonds. These bonds can be a bit riskier, but they return a little more than the
Government bonds. Another type of bond is Corporate bonds. This kind of bond is
usually used by companies to raise money for a sundry of reasons, such as financing
current operations, expanding product lines, or opening up new manufacturing
facilities. Corporate bonds are described as longer-term debt instruments that can
provide a maturity of at least one year (Investopedia, 2020). Mortgage-backed bonds
are also a kind of glue in this financial market. These bonds have the nature of the
assets backed securities. According to Julia Kagan (2020), the mortgage-backed bond
can be financial intermediation between the homebuyer and the investment industry.
The investor who buys a mortgage-backed bond is essentially lending money to the
home buyers.
The last kind of bond is emerging market bonds. This bond can be issued by
governments and organizations situated in developing business sector economies. These
securities give many more noteworthy development openings yet also riskier than the
homegrown or developed security markets.
3. How bonds work
The bond market is a sizeable financial market where you can make some money
when you know how it works. When someone decides to buy a bond, they are willing to
lend their money to a company or a government for a set period. The lending term can
be between a year or less to as long as 30 years. In return, the bond issuer will pay you
the interest. On the maturity date, the issuer is supposed to pay back the bond's face
value to you in full.
People who invest in the bond market can make money in two ways: by interest and
selling a bond higher than you paid. As you invest in the bond market, people will get
regular fixed interest payments while you hold the bond with most adhesives. Some
bonds may have floating rates that may fluctuate over time, and on the maturity date of
that bond, buyers will get back the face value. On the other hand, selling a bond for
more than what you have paid is also a way to make bonds. In general, when loan fees
go down, bond costs go up. If this occurs, you can bring in cash by selling your bond
before it develops. You'll get more than you paid for it, and you'll keep the interest
you've made up until the time you sell it.
According to research by Sunil Mithas, Micheal Kimbrough, and Keongtae Kim
(2017), they proved that IT investment not only matters to stock markets but also bond
markets. However, the affection between needs is different in the role of technology
and the risk transformation. Even as innovation has changed budgetary business sectors,
regardless of whether in values or loan fee trades, bond exchanging is as yet
overwhelmed by voice, with bargains principally done via telephone. As innovation
advanced, the bond could offer information and prescient examination to an
organization of fixed pay members and permit financial specialists to communicate
interest on potential new security issues.
4. Bond market during COVID-19
In 2020, the Covid-19 pandemic has happened and affects many industries, including
the bond market. Although the bond market functioned very well in the global financial
crisis, it cannot last during the COVID-19. According to Nellie Liang (2020), the
corporate bond markets face a significant disruption that many new bond issues shut
down, leading firms to cut down employees and investment. She also said that as the
COVID-19 pandemic occurred, the price of bonds in the financial market falls
significantly. It also makes this market "…riskier, less liquid, and more sensitive to a
deterioration in the economic outlook." (Liang N., 2020). According to Wikipedia
(2020), a gigantic measure of acquiring by firms with evaluations entirely above "junk",
combined with the development of utilized advances made a weakness in the money
related framework.
5. Conclusion
The bond market is a promising market to invest in, although the risk transformation
may occur very high due to inflation and interest rates fluctuation. There are several
types of bonds that essential government bonds (Wikipedia, 2020). Asas the COVID-19
crisis is happening in today's world, the bond market is in an alert state. The bond price
is falling, and the interest rates are likely to stay near zero through 2022 (Fidelity,
2020). In the second half of 2020, post one of the most limited and most honed bear
markets ever. Numerous speculators who were overweight in higher danger resource
classes would have pined for the drawback security that top-notch bonds would have
given. Even though values have halfway bounced back, most business sectors are
perched on misfortunes year-to-date.
REFERENCES
1. Asian Development Bank (2012) Structure, Type, and Characteristics of the
Market. Viet Nam Bond Market Guide [online]. pp.1-19.
2. Chen,
J.
(2020)
Bond
Market.
Available
from:
[Accessed November 3,
2020].
3. Fidelity (2020) Bond Market Observations for the Rest of 2020 . Available
from:
/>
sectors/bond-rates-2020 [Accessed November 3, 2020].
4. Wikipedia
Bond
Market .
Available
[Accessed November 3, 2020].
from:
