Bond Market Explanation

The video takes a live example of a real estate developer who used corporate bonds to finance this deal.  The developer used an underwriter to sell these bonds to investors and these bonds are then able to trade in the secondary market between different investors.  A higher demand for these corporate bonds would indicate that there are higher levels of liquidity.

The key differences between stocks and bonds are then discussed.  Bonds represent long term debt of the issuer.  They are issued to an investor who will provide cash in the amount of the face value of the bond.  Investors will then receive periodic coupon payments, either fixed or floating.  Bonds are more preferred than stocks by more conservative investors as bond investors are the first to be repaid in the event of a bankrupcy. 

Stocks, on the other hand, actually represent ownership in a company and do not have the same claim to the company in the event of bankrupcy.

A few other differences between stocks and bonds are also mentioned; for example, ownership stake through stocks and bonds, tax treatment of interest and dividends, and dividend discretion by the company. 

Some of the basic principles of bonds are then discussed.  It talks through coupon payments, how bonds prices are affected by interest rates, and also how credit quality affects the interest rate of the bond. 

The speaker moves on to discussing the issuance of commercial paper as an alternative to issuing long term bonds.  Commercial paper is a short term financing vehicle used by corporations who need cash for a short amount of time.

Finally, the speaker moves on to discussing the largest issuer of bonds, the government.  Treasury bonds and treasury notes are issued by the US government and are very popular due to their low risk and high liquidity.  They are issued into the market through an auction.