Primary Fixed-Income Markets
Primary bond markets are markets in which an issuer sells a new bond or bonds to investors to raise capital. In contrast, secondary bond markets are markets in which existing bonds are traded among investors. As in the case of an IPO for equity investors, an issuer approaching the bond market for the first time (often referred to as a debut issuer) represents the first opportunity for a fixed-income investor to purchase an issuer’s bonds.
Secondary Fixed-Income Markets
Secondary bond market liquidity varies widely across fixed-income market segments and even among bonds outstanding from a single issuer. The bid–offer spread or difference in price at which a dealer will buy (or bid) from a customer and sell (or offer) to a customer is a key liquidity measure. This spread is often quoted in basis points in fixed-income markets.
Bonds of issuers believed to be very close to or in bankruptcy, as in the previous example, are referred to as distressed debt. Distressed debt typically trades in the secondary market at a price well below par, because bondholders are unlikely to receive all promised future interest and principal payments.
