Intro to the Bond Market

Most borrowers borrow through banks. But established and reputable institutions can also borrow from a different intermediary: the bond market. That’s the topic of this video. We’ll discuss what a bond is, what it does, how it’s rated, and what those ratings ultimately mean.
First, though: what’s a bond? It’s essentially an IOU. A bond details who owes what, and when debt repayment will be made. Unlike stocks, bond ownership doesn’t mean owning part of a firm. It simply means being owed a specific sum, which will be paid back at a promised time. Some bonds also entitle holders to “coupon payments,” which are regular installments paid out on a schedule.
Now-what does a bond do? Like stocks, bonds help raise money. Companies and governments issue bonds to finance new ventures. The ROI from these ventures, can then be used to repay bond holders. Speaking of repayments, borrowing through the bond market may mean better terms than borrowing from banks. This is especially the case for highly-rated bonds.
But what determines a bond’s rating?
Bond ratings are issued by agencies like Standard and Poor’s. A rating reflects the default risk of the institution issuing a bond. “Default risk” is the risk that a bond issuer may be unable to make payments when they come due. The higher the issuer’s default risk, the lower the rating of a bond. A lower rating means lenders will demand higher interest before providing money. For lenders, higher ratings mean a safer investment. And for borrowers (the bond issuers), a higher rating means paying a lower interest on debt.
That said, there are other nuances to the bond market-things like the “crowding out” effect, as well as the effect of collateral on a bond’s interest rate. These are things we’ll leave you to discover in the video. Happy learning!
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[@maherahmed2018]

Amazing explanation - very clear and simple and well-designed presentation

[@borne_free5510]

Great video, very informative and helpful, thanks.

[@vini3995]

great work!! looking forward to watch more interesting finance videos!

[@AbdulQadir-gf5nv]

Thank you so much for great learning experience... love u team ❤️

[@alokebachhar7419]

Awesome video.Thank you sir for your contribution.

[@severerevenge8575]

Hey such a great economy videos!

[@yx1nn232]

amazing video, thank you so much!

[@corruptedcoder9889]

Thank you...it was very helpful ❤️

[@ankitprasaddevrari4160]

WOW...wonderful videos...thanks from India..

[@uturniaphobic]

Great vid and very well done

[@MrS0910241]

why would the demand curve shift right in the crowding out effect. I thought it's the supply curve which shifts left.

[@patrickt873]

Great I really needed this education

[@GLoop無縫循環歌曲]

Thanks for the video!

[@BeavisBateman]

I'm curious about all of it man. More input 😳🍿

[@eutropius2699]

Great video

[@selinsaki6217]

Prof Alex has the best ties ever haha!

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[@nothing-me1mn]

I would like to see more on mortgages! Hopefully something pretty in-depth

[@MarginalRevolutionUniversity]

Thank you for the suggestion. -Roman

[@ozzyfromspace]

Hi, I'm geeking out over these macroeconomics lectures. How are you? Awesome playlist of videos thus far!

[@theBakinNoob]

Same man, I’ve struck gold 😂

[@hassanbenjamin1765]

Good explanation

[@mohammadjavadshafiei5996]

Thanks a lot.

[@wschluch]

I would like to see more depth on the "crowding out" effect of government borrowing. Maybe there are some examples from recent history that aren't too controversial?

[@MarginalRevolutionUniversity]

Thank you for the suggestion. -Roman

[@vaibhavgupta20]

yeah that is the great idea. as long as it is not very political.

[@kevintartis4421]

@@vaibhavgupta20 it's not political. But if you make a video explaining it, it will hurt the lefts economic view

[@Emilyland86]

omg no one can explain economics better that him !

[@jtwssqs]

can anyone tell me why the demand curve moves outward if the government's demand increases?

[@LeoAr37]

All of those intermediaries! :)

[@Truthcanbeconfusing]

I've heard the stock market is up because the federal reserve has traded toxic mortgage backed securities from institutions holding them and has replaced the toxic assets with cash. How exactly is this happening? I was under the impression banks could not buy stocks directly from their funds.

[@tasha5574]

"If we're saving more, we're consuming less." That resonated with me for some reason. We know already that our governments and businesses don't want us to save money, they want us spend spend spend on them. But, surely they WANT people to have money so they can spend on them. If people had more money (were wealthier) they could spend more. But if people became wealthier would they spend themselves back into poverty? Only those without financial discipline I guess. (Rambling to self)

[@luckerooni7628]

They don't want you to spend money necessarily. They want you to exchange dollars for goods and services. Dollars are what they can print. They make more of it to give people the illusion of free exchange possibilities, hoping the resulting trade of goods and services improves the economy enough to support their inflation of currency. So when you spend dollars on gold, you spent dollars on stocks, you did what they wanted - you captured some of the possible economy that could've gone to anyone, including but not limited to America's competitors, and you secured it with an exchange of US dollars that America can make infinitely. When you just hold onto dollars that are depreciating in value as America continues to print, you're both not serving yourself or America. That's why the system does not support the excess savings of dollars, and that's why rich people have diverse portfolios of investments. Most of their net worth is not liquid i.e. in immediately spendable currency.

[@ingilizcehazrlk9134]

thank you

[@virotekaewwilai7322]

ช่องเจ้ดสี

[@rakotondrazakatojoherilant6403]

What if the Government fail to give back the bonds?

[@jesuschristneverlived6938]

Please do "renewable energy"

[@andrapopa284]

I'd like to learn more about the type of funds and how they structure their portfolios based on asset classes.

[@MarginalRevolutionUniversity]

Andra, Quick clarification - by funds you mean mutual funds? Index funds? ETFs? Thanks, Roman

[@andrapopa284]

Yes, indeed, all these types of funds, plus private equity/hedge funds, credit funds, distressed assets funds, funds of funds, even loan funds - e.g. granting loans directly to a borrower...I mean, if you look at a fund's website, you can see a multitude of activities and investments they are doing, assets classes, but how do they match in certain theoretical categories and types? I feel it's too large a gap between the succinct textbook description of funds and the diversity of funds and what they do in real life. And maybe parallels with the EU funds - the mutual regulated ones, UCITS - and the Alternative Funds...

[@cartilo2619]

GOATED

[@saurabhrajput3928]

Lack of liquidity in bond market?

[@salehn418]

How do you profit from bonds

[@shakkamannaka6618]

I would like to see a video on OTC derivatives

[@MarginalRevolutionUniversity]

Got it. Thanks. Roman

[@MrBacete]

I'd like to see venture capital

[@MarginalRevolutionUniversity]

Thank you for the suggestion. -Roman

[@ozzyfromspace]

Hi Roman at MRU :) did you ever find the opportunity to produce the venture capital episode? Needless to say, I'm interested as well. Keep up the fantastic work with these videos, so many people are benefiting from these economic principles.

[@Charvak-Atheist]

But what is the role of Central Banks in controlling interest rate and government bond yield.

[@PraveenPreetha]

little about derivatives too... in your style..!!!

[@vaibhavgupta20]

hedge funds.

[@MarginalRevolutionUniversity]

Got it. Thanks. Roman

[@ankitbishnoi]

@@MarginalRevolutionUniversity When are making a video on hedge funds?

[@nafijulislamsaral8797]

all type of funds

[@soonim-kd6pp]

i dont understand from 2:16 to the end of the vid >

[@C4P0todmax]

He is incorrect when he says that an increase in government spending results in an increase in the demand for loanable funds. It actually leads to a decrease in the supply of loanable funds.

[@npSylarpp]

the governament spending is the increase in demand for loanable funds

[@kennedysingha7277]

I had been thinking, the demand and supply curve was in respect of public. That's why I always got confused. Actually it was in respect of intermediary. Am I right??

[@georgemartins6285]

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[@emilebichelberger7590]

‘Imagine the government borrows 100bil’ that would be a dream. But what’s a few Trillion dollars amongst friends?

[@quentindaniels7460]

Well... we're at zero now... Brace for impact, as we go to infinity and beyond.

[@pouyanpiano]

Hedge funds pleaseeeee

[@henrymark3757]

I don't really, understand some areas of what you said, Sir

[@peterhale3733]

Same thoughts here... I just wish someone will sit down and teach me this thing

[@nathanchandler7762]

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[@henrymark3757]

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[@peterhale3733]

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[@nathanchandler7762]

@@henrymark3757 He's really been a great help to a lot of us in the online trading space.

[@derektaylor3956]

Mortgages pls!

[@davecrupel2817]

2:03 is THAT what our national debt is?!?!?!

[@jon-unicorn-doxxer]

thats just the bonds...the national debt of US is 21 Trillion usd

[@PrinceKumar-hh6yn]

What of their investments don't return their projected amount. Bonds will become Bombs 🤖

[@PraveenPreetha]

Hedge Funds... plss

[@pikiwiki]

what does it mean to say "the higher the interest rate, the more the savings supplied will increase?" Who is saving?

[@Peter-wp5vb]

Everyone should is pressured to save more as interest rates increase

[@jessyeschwabe766]

Mortgage

[@maxmaxington5873]

If you’re watching this then maybe you too are concerned about what the bond market is signalling for the future of the western world.

[@GerardoMojarro]

@OscarLanda What do you think is happening?