Understanding Bond Market Size vs Equity Market

The bond market is significantly larger than the equity market, with a total size of over $100 trillion, compared to the equity market's $70 trillion.

This is evident in the fact that bonds are issued by governments and corporations to raise capital, and the global bond market has been growing steadily over the years.

The total value of outstanding bonds is estimated to be around $120 trillion, which is roughly 1.7 times the size of the equity market.

The sheer size of the bond market can be attributed to the fact that bonds are often used as a safe-haven asset during times of economic uncertainty.

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The bond market is indeed massive, with a size estimated to be at $119 trillion in 2021, surpassing the $117 trillion equity market cap globally.

This enormous size is a testament to the widespread use of bonds as a financial instrument. The bond market size is bigger than the stock market.

In 2022, the total long-term fixed income issuance was a staggering $8.9 trillion, with a year-over-year decrease of 33.9%. This significant drop is likely due to various market and economic factors.

The bond market is not just limited to government-issued bonds; corporate bonds also play a significant role. In 2022, the corporate bonds issuance was $1.4 trillion, with a year-over-year decrease of 30.2%.

Despite the fluctuations, the bond market continues to grow, with a compound annual growth rate (CAGR) of +6.3% over the last five years.

The bond market size is bigger than the stock market, with an estimated $119 trillion in 2021, compared to the $117 trillion equity market cap globally.

This means that for every dollar invested in stocks, there's almost a dollar invested in bonds. It's a staggering difference that highlights the importance of bonds in the global financial landscape.

In fact, the bond market is so large that it dwarfs the stock market, with a significant gap between the two.

The stock market is not the largest market out there. In fact, the bond market size is bigger than the stock market, with an estimated $119 trillion in 2021, compared to the $117 trillion equity market cap globally. This means that the bond market holds a significant amount of value.

The bond market is so large that it dwarfs the stock market in terms of size. This is likely due to the fact that bonds are often used as a safe-haven investment, attracting a wide range of investors looking for stable returns.

In the world of finance, there are various types of bond markets that cater to different investment needs and risk appetites. The corporate bond market is one such type, where corporations issue bonds for working capital or business expansion, offering relatively higher returns due to higher risk.

The municipal bond market is another type, where bonds issued by states, cities, and municipalities are traded, offering huge tax benefits to investors.

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Government-issued bonds are considered highly safe, backed by the government, and offer lower returns compared to other bonds.

Emerging market bonds, issued by governments and companies in emerging economies, offer higher returns with a considerable amount of risk, including exchange rate risk.

The mortgage-backed bond market is a type where bonds are collateralized by a mortgage or mortgages, giving investors the right to the value of the mortgage.

Here's a list of the main types of bond markets:

Investing in the bond market is relatively less risky, but it's essential to understand the basics before diving in. If the issuer defaults, bondholders get preference over shareholders for interest payment and principal repayment.

Bonds are often considered safe-haven assets, but they're not entirely risk-free. The returns offered by them are lower than equity and other risky investments. Two main risks involved in bonds are credit risk and interest rate risk.

Here are the key risks to consider:

The fixed income issuance market has seen significant fluctuations in recent years. Total long-term fixed income issuance was US$8.9 trillion in 2022, a -33.9% year over year decrease.

U.S. Treasury issuance was a major contributor to the market, with US$16.7 trillion in 2022, a -14.3% year over year decrease. This is a significant drop, but it's worth noting that issuance has increased at a +9.8% CAGR over the last five years.

Long-term U.S. Treasury issuance was US$3.8 trillion in 2022, a -25.5% year over year decrease. Despite the decline, issuance has increased at a +7.3% CAGR over the last five years.

Mortgage-backed securities (MBS) issuance was US$2.1 trillion in 2022, a -53.2% year over year decrease. This is a substantial drop, but issuance has still increased at a +2.8% CAGR over the last five years.

Corporate bonds issuance was US$1.4 trillion in 2022, a -30.2% year over year decrease. However, issuance has slightly decreased at a -0.1% CAGR over the last five years.

The top three sectors for corporate bonds issuance in 2023 were Financials, Energy & Power, and Industrials, making up 57.9%, 11.9%, and 8.1% of total issuance, respectively.

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The bond market is a vast and complex world, but don't worry, I've got the basics covered. Investing in the bond market is relatively less risky, but it's essential to be aware of the following key points.

The bondholders get preference over shareholders for interest payment and principal repayment if the issuer defaults.

Bonds are not entirely risk-free, and their returns are lower than equity and other risky investments, especially when they're considered safe-haven assets.

There are two main risks involved in bonds: credit risk and interest rate risk. Credit risk occurs when the issuer defaults and can't pay coupons or repay the principal on maturity, resulting in a potential loss for the investor. Interest rate risk happens when the prevailing market rates exceed the coupon rate of the bond, causing the bond's price to decrease.

Liquidity is another crucial factor to consider when investing in bonds. They typically have large tenures, and investors may face market volatility if they need to exit before maturity.

Here's a quick rundown of the key risks involved in bonds:

Corporate bonds typically have higher interest or coupon rates compared to government bonds, even for companies with excellent credit quality. This is because corporate bonds are perceived to be of a higher risk profile.

Credit risk is calculated based on the issuer's overall ability to repay a bond or loan according to the original terms. Credit rating agencies play a crucial role in reviewing the issuer's creditworthiness before bonds are issued.

In Malaysia, both RAM Ratings and MARC have their own rating scales and methodologies when assigning credit ratings to bonds and sukuk. This means that different agencies may have varying opinions on the same issuer's creditworthiness.

A bond's credit rating is directly related to its credit risk, with lower-rated bonds typically paying higher interest rates/coupons to compensate investors for the higher risk they take on. This is why lower-rated bonds normally have higher yields.

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The bond market is a massive global industry, with a total market size of over $100 trillion. This is a staggering number, but it's dwarfed by the equity market, which is valued at over $90 trillion in global assets.

Bond market operations are complex and involve a multitude of players, including banks, investment firms, and governments. The bond market is a key source of funding for governments and corporations.

To facilitate bond market operations, central banks and other financial institutions act as market makers, providing liquidity and helping to set prices. This is crucial for maintaining market stability and facilitating trades.

The bond market is also heavily influenced by interest rates, with changes in rates affecting bond prices and yields. This has a ripple effect throughout the entire market.

In addition to interest rates, other factors such as credit ratings and economic indicators also impact bond market operations. These factors can influence investor sentiment and drive demand for specific types of bonds.

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The bond market in India is gradually gaining popularity among investors, with some even replacing the equity market as their preferred choice.

The RBI has implemented the delivery versus payment system to ensure smooth functioning of the delivery and payment of securities, which is a major improvement in the bond market.

India now trades unique and sophisticated bond products such as capital indexed bonds, inflation-indexed bonds, and zero-coupon bonds.

These innovative bond products are giving investors more options to manage their risk and potentially earn higher returns.

The bond market secondary market is a key player in Malaysia's financial landscape. Bonds and sukuk can be bought and sold in this market after they've been issued in the primary market.

Retail bonds and sukuk may be issued and traded either on Bursa Malaysia or over-the-counter (OTC) through appointed banks. Trading in the secondary market allows for the sale of bonds and sukuk to take place between investors and dealers.

The size of the Malaysian bond market has been matched by the development of its secondary market. This development has enabled trading across various maturities, comparing well with other bond markets in the region.

Most secondary market activity in Malaysia is concentrated on MGS, with a turnover ratio significantly higher than that of MGII.