Global fixed-income markets represent the largest subset of financial markets in terms of number of issuances and market capitalization. These markets bring borrowers and lenders together to allocate capital globally to its most efficient uses. Fixed-income markets include not only publicly traded securities, such as commercial paper, notes, and bonds, but also non-publicly traded loans. At the end of 2010, the total amount of debt and equity outstanding was about $212 trillion globally.1 The global fixed-income market represented approximately 75% of this total; simply put, global debt markets are three times larger than global equity markets.
Understanding how fixed-income markets are structured and how they operate is important for debt issuers and investors. Debt issuers have financing needs that must be met. For example, a government may need to finance an infrastructure project, a new hospital, or a new school. A company may require funds to expand its business. Financial institutions also have funding needs, and they are among the largest issuers of fixed-income securities. Fixed income is an important asset class for both individual and institutional investors. Thus, investors need to understand the characteristics of fixed-income securities including how these securities are issued and traded.
Among the questions this reading addresses are the following:
What are the key bond market sectors?
How are bonds sold in primary markets and traded in secondary markets?
What types of bonds are issued by governments, government-related entities, financial companies, and non-financial companies?
What additional sources of funds are available to banks?
The remainder of this reading is organized as follows. Section 2 presents an overview of global fixed-income markets and how these markets are classified, including some descriptive statistics on the size of the different bond market sectors. Section 2 also identifies the major issuers of and investors in fixed-income securities and presents fixed-income indexes. Section 3 discusses how fixed-income securities are issued in primary markets, and how these securities are then traded in secondary markets. Sections 4 to 7 examine different bond market sectors. Section 8 discusses additional short-term funding alternatives available to banks, including repurchase agreements. Section 9 concludes and summarizes the reading.