Bond Markets A bond is a debt security, or basically a loan, that an investor makes to a company, government, agency, or municipality. In exchange for upfront cash, a company or government promises to make specific payments to a bondholder on specific dates. The bondholder can expect not only fixed payments but also the principal repayment when the bond reaches its maturity date (The Bond Market, 2002). A bond is considered a fixed income security because the investor knows the exact amount of money that will be repaid if the bond is held to maturity. A bond market is a financial market in which investors can buy and sell various types of bonds or debt securities. It can be classified into three main groups: issuers, underwriters and buyers. Issuers sell bonds or other debt securities in the bond market to finance the operations of their various organizations. The main issuers in the market are governments, banks and corporations. Underwriters are traditionally made up of investment banks and other financial institutions that help the issuer sell the bonds in the market. The need for underwriters is greater for the corporate debt market because it carries greater risks. Buyers are those who purchase the debt issued on the market. They can include not only all the groups mentioned but also any other type of investor, including the individual. The largest player in the market is governments because they borrow and lend money to other governments and banks and often purchase debt from other countries. (Who are the Key Players?, 2007) Today, bonds are available that can meet almost any investment objective and satisfy virtually any investor, whether individual or institutional. The bond market is divided into four main segments: treasuries, agencies, municipalities and corporates. Treasury securities are issued by the U.S. Treasury, have the lowest risk, and are of the highest quality. All Treasury securities are backed by the “full faith and credit” of the U.S. government and are highly valued by both individual and institutional investors (Gitman & Joehnk, 2005, p. 429). Agency bonds are issued by various agencies and organizations of the United States government. Although they are very similar to Treasury securities, they are not subject to U.S. Treasury obligations and cannot be considered the same thing.