Differences between Bond market and Stock market

Differences between Bond market and Stock market

The bond market and the stock market are the two most important segments of the capital market. The following are some of the important differences between a bond market and Stock Market.

Differences between bond market and stock market
Differences between bond market and stock market

1. While the stock market is primarily known as a barometer by which an economy can be addressed, the bond market is highly regarded as an indicator of how the economy is progressing now.

2. The stock market as a market for variable income is mainly focused on the prediction of future profits of the companies and the bond market as a debt market is more concerned with current interest rates, which are the concerns of many market participants beyond the corporations.

3. The size of the bond market is several times the size of the stock market, which can be attributed to the different structures and the perceived risks of the two markets.

4. Although companies can only issue shares, governments, organizations and agencies, along with corporations, all can issue bonds.

5. The bond market is a massive and decentralized network of market participants, while the stock market is a highly centralized one that consists of only a few exchanges and a limited number of markets on highly controlled counter.

6. The differences in market structure offer different incentives for issuers of bonds and equity issuers. To issue bonds, issuers need not fulfill any requirements in the market, while to issue shares, companies face stringent listing requirements of actions enforced by the exchange. As a result, the greater amount of bonds can reach the market more easily than shares, thereby contributing to the larger size of the bond market.

7. The different levels of investment risk perceived by bonds and stocks contribute to the impact on size of the bond market compared to the stock market.

8. The bonds are often referred to as fixed-income securities that pay an agreed interest rate and return the principal investment at maturity, presenting a relatively low risk for investors. On the contrary, shares provide potentially more benefits, but also with increased risk.

9. Since investors in generally are averse to risk, most investors would be willing to invest in the bonds that are safe than than stocks that are risky, especially in the alarming market conditions, which requires a larger bond market to accommodate the increased demand for investors.