Bond market
A bond market allows issuers to raise funds from investors and allows holders to trade existing claims. Prices reflect contractual cash flows, required yields, credit risk, maturity, liquidity and embedded features. Not all bonds have fixed coupons or a single redemption payment; terms vary. Secondary-market liquidity can be limited, especially for smaller issues. A bond's market value may move even while its promised coupon remains unchanged. Separate the issuer's proceeds from later investor trading and distinguish coupon rate, current income yield and yield to maturity.
Worked example
A company issues a fixed-coupon bond. If required market yields subsequently rise, the value of its unchanged promised payments generally falls, so an investor selling before maturity may receive less than the nominal amount.
Common mistake
Assuming fixed coupon means fixed market price or no risk of loss on sale before maturity.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |