The Difference between Debt and Equity Markets
While you read this page, pay attention to the difference between equity and debt and how and when companies issue either instrument. One of the advantages of holding bonds over stocks is that bondholders have priority in being paid over stockholders. This happens because bondholders are technically loan providers rather than owners, as is the case with stakeholders. From a legal perspective, loan providers are on top of the hierarchy in receiving their rights should the company be liquidated. When would companies prefer issuing bonds rather than stocks? What are three differences between debt instruments and equity instruments?
How Large are Debt Markets?
It seems that the average person is much more aware of the equity (stock) market than of the debt market. Yet, the debt market is the much larger of the two. For example, in September 2005 (the most recent data available at the time this answer was written), about $218 billion of new corporate bonds were issued, as compared to slightly under $18 billion in new corporate stocks. Chart 1 compares new issues of corporate bonds and corporate stocks in the United States for the past ten years.
Another way to compare the size of the two markets is to think about the total amounts of debt and equity instruments outstanding at the end of a particular period. According to "Flow of Funds" data of March 2006, published by the Board of Governors of the Federal Reserve System for the fourth quarter of 2005, there was approximately $34,818 billion in outstanding debt instruments and about $18,199 billion in outstanding corporate equities. Thus, the size of the debt market as of the last quarter of 2005 was about twice that of the equity market.