Bond Market Indicators

Just as stock market indexes provide guidance concerning the performance of the overall stock market, several bond market indicators measure the performance of various categories of bonds. The three most well-known groups of indexes are those of Merrill Lynch, Lehman Brothers, and Salomon Smith Barney.

Table 2.7, Panel A, lists the components of the bond market in mid-2001. Panel B presents a profile of the characteristics of the three major bond indexes.

The major problem with these indexes is that true rates of return on many bonds are difficult to compute because bonds trade infrequently, which makes it hard to get reliable, up-to-date prices. In practice, some prices must be estimated from bond valuation models. These so-called matrix prices may differ from true market values.

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