Are issuers selling a portion of their borrowed money to the public as bonds? If so, how does a public price increase for a bond happen? Also how do issuers make profit off of their publicly sold bonds?
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A government entity or company wants to borrow money by issuing bonds. As a public investor, you’re buying a portion of the loan. Say city wants to issue $20m in bonds to pay for a new school. The bankers they work with look sell those bonds by attracting many investors to the issue. There may be minimum amounts and set increments, ie. at least $1000 and buy in $1000 increments. So there would effectively be 20,000 “shares” of the bond that could be bought by investors.
Prices for bonds on the secondary market shift as overall interest rates shift. If municipals bonds were paying 4% but now the going rate is 5%, to get somebody to buy a 4% bond, you’d have to drop the price until the effective rate at the new price is 5%. Conversely, if interest rates fall, then the price of the bond will rise until the rate equals the prevailing interest rates.
Issuers make a profit by holding some of the issue themselves, as well as charging fees to the borrower and commissions to the bond buyers.
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