<p>This is no different from any other markets... just for money.</p>

<p>On the demand side of the goods, those who want money (those who sell bonds) say how much they're willing to pay in terms of bond yields. The supplier of the goods (bond buyers) come to the bond market and choose the product.</p>

<p>Under a developed bond market, it's guaranteed that those who get the goods (money) are the bond sellers who could pay the highest [risk-adjusted] price, which would infer that they could use that goods most productively. It's also guaranteed that those who sell the goods (bond buyers) are the ones who require the lowest price, i.e. opportunity cost is the lowest.</p>

CC BY-SA 4.0
2019-10-11T04:10:31.710Z
2019-10-11T04:10:31.710Z
Art
<p>Going from this quote by <a href="https://citywireamericas.com/manager/bryan-collins/d15454" rel="nofollow noreferrer">Bryan Collins</a> of <a href="https://www.fidelityinstitutional.com/en/" rel="nofollow noreferrer">Fidelity</a> on China's economy:</p>

<blockquote>
  <p>One of the nice things we see from the development of a domestic bond
  market is that it starts the process of pricing capital better. And
  when you price capital better, you get a much better chance of that
  capital being allocated more efficiently.</p>
</blockquote>

<p>I can certainly follow Collins' logic, but I don't understand the economic theory that underpins this logic.</p>

<h2>Question</h2>

<p>Why is it exactly that a developed bond market leads to more efficient allocation of capital? </p>

<macroeconomics><bonds><capital>
Why does the bond market induce efficient allocation of capital?
Arash Howaida
# Why does the bond market induce efficient allocation of capital?

(Asked by: username_0 on 2019-10-11)

Going from this quote by [Bryan Collins](https://citywireamericas.com/manager/bryan-collins/d15454) of [Fidelity](https://www.fidelityinstitutional.com/en/) on China's economy:

> One of the nice things we see from the development of a domestic bond
> market is that it starts the process of pricing capital better. And
> when you price capital better, you get a much better chance of that
> capital being allocated more efficiently.

I can certainly follow Collins' logic, but I don't understand the economic theory that underpins this logic.

## Question

Why is it exactly that a developed bond market leads to more efficient allocation of capital?

**Tags:** macroeconomics, bonds, capital

---

## 1 answers

### Answer by username_1 on 2019-10-11. Score: 2 | Accepted answer

This is no different from any other markets... just for money.

On the demand side of the goods, those who want money (those who sell bonds) say how much they're willing to pay in terms of bond yields. The supplier of the goods (bond buyers) come to the bond market and choose the product.

Under a developed bond market, it's guaranteed that those who get the goods (money) are the bond sellers who could pay the highest [risk-adjusted] price, which would infer that they could use that goods most productively. It's also guaranteed that those who sell the goods (bond buyers) are the ones who require the lowest price, i.e. opportunity cost is the lowest.


---

