Bond market is the building block for any economy. Developing a strong bond market is a complex task. It needs a thorough understanding of the market. This article gives the reader a clear understanding of bond markets. It highlights the significance of bond markets for the growth of an economy and explains different types of bond markets, various bond market instruments, and the role of credit rating agencies in bond markets. The factors influencing bond markets are also enumerated at the end of the article.

Bond markets play a vital role in building a country's strong financial system. They have attained increased importance in the last few years as a consequence of several crises in the financial markets. Of late, the need for an efficient bond market is being felt by the emerging economies. Much of this concern stems from the perception of the policy-makers, that the absence of an efficient bond market makes the economy more vulnerable to financial crises.

Bond is a contractual loan instrument issued by a borrower promising to pay interest and repay the principal according to pre-specified terms to a lender. However, it is not the only source of credit to the borrower. It only serves as a means to diversify the borrowers' risk by borrowing from various sources. Bond market acts as a bridge between the borrowers, such as, government and corporations and the investors or lenders.

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