Bond Market History

Between 1915 and 1917, the United States Treasury bond market began as a way to fund plans for World War I. Money for the war was financed by a rise in taxes and through the sale of war bonds, called Liberty Bonds. Over $21 billion dollars were raised in bonds that would come due in full (mature) after the war. However, the government did not have enough to cover the debt when it came due, so more money was raised to pay off the first debt (rolled over) into bills (due in less than one year), and notes (due in under ten years), and bonds (due in ten to thirty years). These amounts were paid off regularly until borrowings were increased during the Great Depression at the end of the 1920s.

The United States Treasury issued subscription bonds where the public signed up for a set interest payment coupon and maturity price until 1929. Demand for government bonds and other investments became so great that the Treasury set up auctions which became a regular event. They were important because the yields in each maturity were used to as a 'risk free rate' for credit purposes. From this point onward, government bonds were systematically created which had a secure annual interest percentage.

Over the years, government bonds have become available to foreign governments. As the foreign governments began to have a surplus of trade with the U.S., they became holders of United States debt. As deficits rose during World War II and the Vietnam war, the debt markets and the rise of debt-related investments has dominated financial markets. Most trading in the bond market occurs over-the-counter (through organized electronic trading networks or groups), and is composed of the primary market through which debt securities are issued and sold by borrowers to lenders, and the secondary market through which investors buy and sell previously issued debt securities amongst themselves. Although the stock market often commands more media attention, the bond market is actually many times larger and it is even more vital to the ongoing operation of the public and private sectors.