The Purpose of the Bond Market

The bond market serves both issuers and purchasers in unique ways. Issuers of bonds, like government bodies or corporations, get immediate financing without having to take a loan from a traditional lender. Purchasers of bonds, typically called investors, get to participate in the loan business without having the capital required to fund large loans.

Bonds as Funding Sources

Businesses, from small public companies to the federal government with its astronomical budget, all have a limit to their finances. They will need loans to expand and reach into new areas. Large lenders provide the vast majority of these loans, but all businesses reach a point where they would rather set their own terms than work with lenders indefinitely. Bonds are issued according to a business's own desires, such as limits and interest rates, and investors can either choose to purchase them or leave them be, but investors cannot change these terms.

Bonds as Investments

Investors receive a great benefit from the stability of a bond investment. Making loans on interest is a very stable and lucrative business, but it can require an extremely high amount of capital in order to get started. When an investor buys a bond, the investor is issuing a small part of a loan, making the lending business more manageable for the common person.

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