Bonds: Bigger, Broader, More Diverse Opportunity Set than Stocks

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This is part three of a five-part series on “Finding Needles in the Fixed Income Haystack.” Here are links to part one and part two.

Bond. The World is Not Enough

“Gentlemen prefer bonds.” – Attributed to Andrew Mellon (1835 – 1919)

The bond market is by far the largest securities market in the world. Depending on the methodology used, the market capitalization of the global fixed income market is one-third to three times greater than the global equity market.1 But the global and domestic bond markets are notoriously opaque.

Time to lift the fog.

The global debt market is roughly $300 trillion in size (see chart below) whereas global equity market capitalization is in the $101 to 108 trillion range. There are 60 major global stock exchanges (think NYSE and Nasdaq). According to The World Federation of Exchanges, there were 58,200 listed companies on stock exchanges across the globe.2 The Center for Research in Security Prices (CRSP) in Chicago claims there are only 3,852 listed companies on U.S. exchanges (the NYSE states there are twice that amount – 8,000 US-listed stocks).3

table 1