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Bond Markets

What are Bonds and What are the Different Types

A bond refers to a debt instrument or certificate, of which the purchaser anticipates repayment of principal with interest when the investment matures. The bond market refers to a fiscal market on which the purchasing and selling of bonds take place. The global bond market commands forty-five trillion dollars annually, while over half of that debt accrues by the bond market in the United States. The composition of the bond market is rather dissimilar to the stock market, commodities and options markets, in regards that the bulk of buying and selling happens between brokers and financial institutions is what is call an over-the-counter market. However, there are some exchanges found listing corporate bonds and generally, this is due to the make-up of corporate bonds being rather different.

There are a number of different types of bonds. The Securities Industry and Financial Markets Association, has separated the bond market into the following classes:
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Municipal

Municipal bonds garner issuance by state and local government organizations to raise funds for the building and maintenance of infrastructure. Such bonds may also finance cash flows for such organizations. There is an advantage for those investing in municipal bonds; no federal taxes are due upon maturity.

Government Bonds - Agency Bonds

Government and agency bonds see issuance by a variety of government related initiatives. Such organizations achieved designation by Congress to fund loans at affordable rates to specific types of borrowers, such as a student looking to take out student loans. These organizations largely depend upon debt funding for their day-to-day functioning.

Mortgage and Asset Bonds

Financial organizations offer mortgage debts for investors looking to purchase mortgage loans. Such loans offer leverage to finance real estate purchases. With the remittance of payment on such mortgages, the investor gains profits through interest, aside from receiving their principal back. Asset bonds re much like in mortgage bonds, representing interest in diverse ranges of assets such as lease and loans on vehicles, home improvement loans, or credit receivables and so forth. With the repayment of the loans, the investor gains profits through interest accrued in addition to principal.

Bonds from Corporations

Corporate debt bonds, offered by corporations for the purpose of raising funds to support their daily operations and generate additional future profitability. Many types of corporations issue such bonds from the service industries, the biotech industry to medical related corporate firms and many others not mentioned.