The bond market is an OTC (Over-the-Counter) market instead of a central exchange trading place as the stock market. The developers of corporate bond market trading, mostly broker-dealers, have failed to create markets with liquidity comparable to stock market. The 21st Century liquidity explosion in the stock market was facilitated by some new types of products/ innovations e.g. Index funds, Futures contracts, ETFs, and electronic trading platforms.

Bond is a different animal

However, to implement the changes in stock market trading to the bond market without any change to the bonds themselves has so far not been successful. One of the reasons is that there has not been any central party that balances the joint interests of bond issuers and bond traders. Bond issuers are not structuring bonds in ways so that they are attractive to buyers: covenant packages are difficult to grip and their consequences on pricing in the secondary market is at best unclear. So the result is that its too complicated to identify more or less attractive bonds.

What is a bond?

Issuing bond is a way of borrowing money. The issuer company is borrowing money from investors with the promise to repay the money at a future (agreed) day together with an compensation for the additional risk of not getting the money back plus compensation for not spending the money today.

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About the author:

Joakim Sjölund, CEO and Co-founder, Maiyak.

Background from senior position in leading Nordic commercial bank. Professional experience from various debt instruments.


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