As with any investment, an investor should invest in the secondary bond market if (s)he believes that the return obtainable through such an investment is worth the probability-factored risk of securing the investment.
Bonds are traded between investors in the secondary market. However, unlike stocks, most bonds are not traded in the secondary market via exchanges. In the secondary market transactions, the bond does not have to be traded for its original issue price.
A bond yield is the price of a bond that an investor will hold said bond to maturity at. This relates to price as the price dictates when the investor will sell their bond.
A bond yield is the price of a bond that an investor will hold said bond to maturity at. This relates to price as the price dictates when the investor will sell their bond.
Since the current market interest rate is higher, it is more attractive to a new investor then the bond with a lower interest rate. Thus, the price of the lower interest rate bond has to decline to be competitive with new bonds in the market.
The bond market (also known as the credit, or fixed income market) is a financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities, known as the Secondary market, usually in the form of bonds.
A bond that pays 1 coupon(s) of 10% per year, that has a market value of $1,102.05, and that matures in 19 years will have a yield to maturity of 8.87%. What does it mean? Well, bond investors don't just buy only newly issued bonds (on the primary market) but can also buy previously issued bonds from other investors (on the secondary market). Depending on whether a bond on the secondary market is bought at a discount or premium, the actual rate of return can be greater or lower than the quoted annual coupon rate. This is why bond investors need to look at YTM, which measures the bond's yield from the day the investor buys it to the day it expires, when the principal is paid to the bondholder.
A primary market is the main market to which you are selling.A secondary market is an additional market to which you are selling.AnswerA primary offering, such as with a corporate bond, means you are buying it directly from the issuer, at par value, usually. A secondary market is where you sell or buy existing issues. I.E. If you bought a bond last year, now need to get your principal, you can sell it in the secondary market. You may not get par value. If rates are up since you bought the bond, then you will likely have to sell it at a discount to be able to get rid of it. If rates have fallen since you bought it, you could get a premium for it..
corporate bond
corporate bond
Since the current market interest rate is higher, it is more attractive to a new investor then the bond with a lower interest rate. Thus, the price of the lower interest rate bond has to decline to be competitive with new bonds in the market.
It goes to the investor who buys the bond. A zero coupon bond is a bond in which, the investor need not pay any premium (coupon) above the face value of the bond while purchasing it. Let us say a company issues a $10,000 bond at a discount of 10% with zero coupon, it is enough if the investor pays $9000 to buy the bond. At the time of maturity he would get back $10,000. This 10% discount can be compared to the interest earned on the investment for the investor.
Bonds are traded both in the primary market, which is the initial sale of the bonds, and in the secondary market, which is the sale of bonds subsequent to the initial sale by the issuer or underwriter.