Lesson 11 of 21 · Bond Trading Life Cycle
Primary Market
Investors provide capital to corporations and government in the primary market
What this shows: The stages a bond moves through, and which participants are active at each one.
Stage
Primary market: Underwriters market and allocate the new bonds to investors. Active: Issuer, Underwriters, Investors.
PRIMARY MARKET
Corporate Bond Market
The corporate bond market is used by corporations and financial institutions to raise medium to long term debt financing. Funds can be raised in a variety of forms:
Primary Bond Market
The primary market is the marketplace where corporations and governments offer their bonds to investors. New bond issues are underwritten by one or more lead managers and a syndicate of co-managers. The underwriting process involves the following:
Standard Bond Offering Structure:
- Fixed rate new issues are generally offered at:
- A fixed spread (in bps) over a government benchmark rate (e.g. 10Y UST + 50bps)
- A fixed price/yield (e.g. 8% yield)
- Floating rate notes (“FRNs”) are offered at a spread over a short term floating rate index (e.g. 3M USD LIBOR)