CFA Level I · CFA Level I Exam · Fixed-Income Issuance and Trading
In secondary bond markets, most government bonds and corporate bonds are most likely traded through which of the following arrangements?
Most bonds trade over the counter through dealers. Dealers quote bid and ask prices and trade from inventory, which suits the large number of different bond issues. Exchange trading is a small share of volume, and issuer auctions are primary market events rather than secondary trading.
- AOn a centralized order-driven exchange only
- BOver the counter through dealersCorrect
- CThrough the issuer's own primary auction
Explanation
Most bonds trade over the counter, where dealers quote prices and trade from their own inventory. Centralized exchange trading handles only a small share of bond volume, and primary auctions belong to the primary market, not secondary trading.
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