Lesson 4 of 5 · 14 min
Primary markets: how bonds are issued
In the primary market an issuer sells new bonds to raise money, and the process ranges from a weeks-long debut with roadshows to a few-hour shelf issue by a frequent investment-grade borrower.
In short
- Primary market: issuer sells new bonds for financing. Secondary market: investors trade existing bonds with each other.
- Public offering: anyone may buy. Private placement: sold only to one or a few selected investors; typical for small, less-known or customised deals.
- A debut issuer (first bond) usually replaces private debt such as bank loans, the bond analogue of an IPO; underwriters run roadshows for weeks.
- Repeat issuers usually sell a new bond priced at or near par; adding to an existing bond priced well away from par is a reopening. Frequent issuers use a shelf registration.
- Underwritten offering: intermediaries guarantee the sale at a negotiated price. Best-efforts: the intermediary acts only as broker, common for lower-quality bonds. Sovereigns usually issue by public auction.
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