Fixed Income Securities I: The Bond Markets

In most countries government expenditure exceeds the level of government income received through taxation. This shortfall is met by government borrowing, and bonds are issued to finance the government’s debt. The core of any domestic capital market is usually the government bond market, which also forms the benchmark for all other borrowing. Government agencies also issue bonds, as do local governments or municipalities. Often (but not always) these bonds are virtually as secure as government bonds. Corporate borrowers issue bonds both to raise finance for major projects and to cover ongoing and operational expenses. Corporate finance is a mixture of debt and equity, and a specific capital project will often be financed by a mixture of both.