Bond Market
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority and you can order it here)

Although the various STOCK EXCHANGES list bonds, the principal markets for bonds U.S. Government, federal agency, international and foreign, state and municipal, and corporate are the over-the-counter-markets, with markets made and trading carried on by bond houses tending to specialize in trading as well as underwriting in one or more of these sectors.  Commercial banks of larger size are also found in this field as bank dealers, underwriting and trading U.S. Government and general obligation state and municipal securities.

The bond market is predominantly institutional, with commercial banks particularly heavy investors in state and local government issues.

The above trends reflect the restriction of savings institutions largely to the bond market by statutes and administrative regulations and, on the other hand, their low motivation because of light taxability to invest in state and municipal issues, which are exempt (as to their interest income) from the federal income tax.  Commercial banks, however, are subject to federal income taxes, and thus have found the tax exempts to be attractive in recent years in view of higher volume of time and savings deposits and the higher interest rates paid on such deposits.

By contrast, pension funds, investment companies, and individuals in recent years have shown relatively light increases in ownership of straight bonds, reflecting their investing preferences for convertible bonds and debentures and for common stocks directly.

BIBLIOGRAPHY

Corporate Bond Ratings:  An Overview.  Standard & Poor’s Corporation, New York , NHY, Periodic updates.  

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