Bond Market Training
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You have been asked to write a training document about the US Bond Market for use in the new employee training program. In your document, you must make sure to address each of the following:
The key players in the market; and the types of investments available to both individual investors and institutional investors,
The way transactions are carried out, and
The relation, if any, between the bond markets and the stock markets.
The bond market is made up of three groups; issuers, purchasers, and underwriters. The issuers use the bonds to raise funds to help reach their financial goal. The underwriters are usually financial institutions including investment banks that will assist the issuer in selling the bonds. The purchaser is the final part of the bond market. This is where the funds come from for the issuer (Investopedia 2, 2007).
The issuers of bonds can be the government, corporations, or smaller businesses that need to raise funds for different business needs such as expanding, obtaining large assets for the business or other financial needs. The underwriter is a commercial or investment bank that purchases new issues of bonds for resale (GroLen, 2002). The purchasers, either individual or institutions, purchase the bonds from the underwriter. The purchaser can purchase bonds on either the primary or secondary market. The primary market is made up of new issues of bonds, whereas the secondary market offers previously issued bonds (Gitman, 2005).
There are different types of investments available for investors. The main types are the corporate, municipal and government bonds (Wells, n.d.). Also available are treasury and savings bonds (CCH, 2007). Within each category, there are different options for the investor. The corporate bonds are made up of equipment trust bonds, collateral trust bonds, subordinate bonds, and convertible bonds. Municipal and government bonds are issued by counties, cities and states to fund various projects such as highways, educational facilities and other endeavors for the public good (Intercontinental, n.d.). Treasury and savings bond are usually issued the U.S. government (CCH, 2007).
There are alternative ways to purchase bonds. An investor can utilize the services of a full service or discount broker or open an account with a bond broker. Investors can also purchase bonds directly from the government via the internet. These types of transactions and the interest payments during the life of the bonds are completed electronically (Investopdia 1, 2007). The benefit of purchasing bonds via the internet is that the commissions and fees associated with full service and discount brokers are avoided. However, investors new to the investing community may wish to go with a full service or discount broker due to the advice and services offered until the knowledge of all areas of investing is at a level that will ensure the investor’s success.
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