Money Market Bonds

What is Money Market?

In simple terms money markets are the financial market for borrowing or lending for short-term periods. Money markets will often provide very liquid funding for the world financial market. The money market is generally where you will find papers like banker’s acceptances and Treasury bills.

Money markets will consist of large institutions and brokers who deal in finance and credit. Their main purpose will be to either borrow or give loans. The time frame for borrowing in the money-market is short term, more commonly ranging form 1 to 3 years. The instruments traded in money markets are typically called ‘papers’.

Long term versions of money markets that provide long-term funding are generally called “capital markets”.

What are Bonds?

Bonds are a method of debt security in which the issuer will owe a debt to the holder. In simple terms it is like an IOU but the issuer will have made a promise to repay the holder their principal with interest at the time the bond matures.

In other terms a bond is a legal contract that represents a loan however with some different terms. Bonds are common in order to fund long-term finances. Bond issuers often issue bonds to raise capital in long term projects or for growth.

What are Money Market Bonds?

Technically there are no money market bonds. In money markets, bonds are not traded as they are designed to be long term financial instruments. Certificate of deposits and commercial papers are money market instruments and often referred to as money market bonds. Bonds and equity will not normally be traded on the money market, but instead it is traded on capital markets or bond markets where the primary goal is for long-term lending or borrowing as a bond is a long-term financial instrument.

Money Market Bonds

Money market bonds can be got from money markets or capital markets but another source for bonds is the bond market. The bond market goes with a few names including the fixed income market or the debt or credit market. Traders in this market primarily buy and sell bonds or debt securities. The world bond market is estimated to be valued at over forty-five trillion dollars. Of which more then half of the bonds were issued in the USA.

The bond market trades on average close to a trillion dollars every day just in the U.S. Not all of this is in a certain market place setting. A primary characteristic of bonds is that it is an over the counter security where two institutions may broker a deal with little interference form a governing party.

The bond market still remains completely decentralized. There is no one bond market. This is mainly because no two bonds share exact similarities. The terms and conditions can differ. Unlike other centralize markets like stocks or commodity markets it is difficult to govern a bond market. Also the number of outstanding securities is much larger. There is however a number of bonds that still get dealt in private exchanges. These are mostly corporate bonds.

References:

http://en.wikipedia.org/wiki/Bond_%28finance%29
http://en.wikipedia.org/wiki/Money_market
http://www.ft.com