Primary Bond Market

The market where bonds are issued to the public for the first time to raise capital for various purposes is called a primary bond market.

When a company is in need of funds for financing a project, it decides to raise capital and one of the ways to do this is by issuing bonds.

Primary markets are facilitated by the investment banks that set a beginning price range for a given security and oversee its sale to investors.

For example, in the latest takeover of Air India airlines by Tata for Rs. 18,000 crores. In this case, the government is raising bonds of Rs. 30,000 crore to repay Air India’s dues.

This is the initial sale of the bond made in the market and is termed as primary market bond sale and when this issued bond will trade further it will be called a secondary market bond trading.

Under the primary market, companies issue new bonds to the public for the first time just like an initial public offering.

However, bonds issued in the primary market can be issued either via public offering or private offering.

Under the public offering, any member of the public can buy the bonds whereas under the private placement offering the securities are not directly sold to the public rather the issue is sold via an investor or a group of investors.

Under the primary bond market, the securities issued must be registered with the Securities and Exchange Commission as per the Securities Act of 1933.

Information in regards to nature of the business, features of the security to be issued, risks associated, the profile of the management, and list of investors involved.

However, the bond market is divided into the primary market and secondary market. The secondary market is the trading of securities already traded in the primary market.

The Indian bond market has significantly matured in the last few years thereby having high liquidity in the bond market and equally having adequate stability that makes it a safe investment avenue for investors who don’t rely on taking risks.