Types of Bonds

 Globalisation and the rise of multiple types of European bond markets including a European corporate bond market have changed the opportunities for European bond investors--and everyone else. 

Although the US has traditionally dominated the world’s bond markets, bonds issued in the US now account for less than half –about 44%--of the global bond market volume. In Europe, bonds are about 2/3 of the total amount of securities outstanding in bonds and shares; in the US, the bond market is about the same size as the stock market. Historically fragmented, the bond markets of the world comprise a great variety of bond products with complex and different characteristics. About 60% of the European bond market is government bond debt, 29% is corporate, and 11% is asset-backed; in the US, the proportion of bonds issued by the corporate sector is much larger.  

Bond markets are open to both institutional and individual investors, but there is much more participation generally by institutional investors than individual investors. European individual investors in bonds represent less than 5% of the direct investment in the European bond markets. The majority of bond market participants in Europe are institutional investors, such as pension funds, insurance companies and banks. 

Direct holdings of bonds by individual investors nevertheless vary a lot in between European countries. In Italy, individual investor holdings of bonds comprise 20% or more (in 2004, average more than €12,000) of total financial holdings. In Germany, the equivalent percentage is between 10-15% (in 2004, some €5,800) and in other countries it will be typically lower than 5%; the lowest figure being that for the UK (just 1.5%). (In 2004, average British, Spanish and French individual investors held around €1,000 worth of bonds.)  

In comparison in the US, individual holdings of bonds amount to circa 6.9% of total financial holdings. The US bond markets have significant participation by individual investors in the local municipal government bond market (sub-sovereign bonds) where about 20-25% of investor participants are individuals. 

Where deposits and cash are excluded from total financial holdings to take into account only investment in financial products, the portion of bonds in Italian individual investor portfolios rises to 30.7% (against 2% for Britain and 7.9% for the US).  

In Belgium, Germany and Italy, individual investors prefer to invest in bonds directly while in other European countries such investments take place primarily through funds.