We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Are the Different Types of Debt Markets?

Jim B.
By Jim B.
Updated May 17, 2024
Our promise to you
WiseGEEK is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGEEK, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

There are many different debt markets that are all essentially based on basic loans between two parties, since the repayment of the debt creates a security. Bonds are the main debt instruments used by investors, who give loans to institutions in return for regular interest payments. Several different institutions which offer bonds, including governments, municipalities, and corporations, create distinct debt markets. These institutions vary in terms of the possible return they offer and the amount of risk involved for investors.

Novice investors often assume that the stock market is the only place where capital can be placed with the expectations that it will grow. Those investors are often overlooking the many opportunities for investments afforded by debt markets. These markets often focus on so-called fixed income securities, which promise regular return to investors. Bonds are the most popular fixed income securities, although some institutions also offer debentures, collateralized debt obligations, certificates of deposit, and many other instruments that promise regular return on investment capital.

When an investor buys a bond from the debt markets, he or she is essentially giving a loan to the issuer of that bond. In return, the investor generally receives the eventual return of the principal of the bond at the end of the bond term. On top of that, the investor is scheduled to receive interest payments at a percentage rate. This rate is specified at the beginning of the bond and is also known as the coupon rate.

Bonds in different debt markets usually offer coupon rates that are based on the amount of risk involved. The basic rule for debt instruments states that, as risk levels rise, so too do the attached coupon rates. In this way, the investor is compensated for the risk that the issuer might default on its payment obligations. Government bonds are generally the safest investments and, as such, have low coupon rates. Municipal bonds are also generally safe, since it rare for a town or city to suffer such financial calamities that they can't repay their loans.

On the other hand, corporate bonds represent the riskiest of the debt markets. There are certain corporations which offer bonds as a way to raise money, and some of these corporations are saddled with poor credit ratings. As a result, the bonds that they offer are often termed "junk bonds." These bonds can offer investors high interest payments, but only at the substantial risk that the corporation will default and even the investor's principal will be lost.

WiseGEEK is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

WiseGEEK, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGEEK, in your inbox

Our latest articles, guides, and more, delivered daily.