It should be started with that bond markets have been around for almost as long as equity markets. The relatively stable nature of bond investments is a probable reason that makes most retail investors think that bonds are less exciting in comparison to equities. One can probably even argue that media coverage of stock markets is far more extensive than coverage of the bond markets.

Let’s remind the most important notions concerning bond:

Let’s start with bond itself. A bond is a debt instrument issued by a company or a government.

It is also very important to know that the buyer of the bond is in effect loaning money to the institution and is promised the full principal plus a fixed periodic payout during the tenure of the bond.

The total payouts received together with the final principal will be put together in a computation to determine the yield on the bond.

The yield, in layman's terms, is the effective interest rate earned on the bond for the entire duration.

It should be pointed out that some issuers issue zero-coupon bonds that do not have any payout during the bond tenure.

The investor earns the difference between the purchase price of the bond is earned by and the principal value that is also known as the face value.

Talking about such kind of investments it is very important to mention that because of the fact that investment banking trading desks make profits on trading bonds on a regular basis, by taking on credit risk and interest rate duration risk, this is often not the case for the retail investor, who does not usually have the availability of live interest rate and bond trading data.

A retail investor's objective in buying bonds can be considered as an attempt to earn a better yield compared to ordinary deposit rates. The investor should be able to receive his/her full principal at maturity of the bond, which can have a tenure of anywhere from three months to fifteen years in the case hat the issuer is sufficiently creditworthy. The investor may have an opportunity to make capital gains from his bond investment if the market interest rates should fall and this presents an extra advantage for bond investments over ordinary deposits.

The bond market is still largely an over the counter market. Market participants comprise large investment banks, private banks and asset managers. Bonds traded on the over the counter market do not exhibit this price transparency unlike stocks that are traded on an exchange and hence have price transparency. There is the lack of price transparency and a lack of ready liquidity, as one would not be able to determine the liquidity for a particular bond issue. This could be called one of the reasons why people are not as familiar with bonds as they are with stocks.

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