Unlike the well-known stock markets, like the New York Stock Exchange and NASDAQ, the bond markets are not centralized in specific locations, nor is there a bond market “floor" like there is at the NYSE. In addition, all but the largest and most liquid bonds are not traded via a quote system where bid and ask prices are updated in real time. This is due to the fact that bonds are not traded as widely or as frequently as stocks.
Most bonds are traded in the over-the-counter, or OTC, market. Essentially, this means that bonds are bought and sold through the bond desks of various broker dealers. Individual investors can get quotes to buy and sell bonds by contacting the bond desk of their broker dealer. If the broker has an inventory of the desired bond, they can offer to sell that inventory. Otherwise, the bond desk will contact the bond desk of other brokers and find out if they have an inventory of the bond, and if so, at what price they would be willing to sell the bond.
The bond desk will then give the investor a quote that is valid for a set period of time for a specific quantity of a certain bond. This quote will include a “spread" which acts like a commission for buying or selling the bonds. This lack of transparency in pricing, as well as the variation of spreads among brokers makes investing in individual bonds difficult for retail level investors on a short-term basis. The Federal Reserve's actions can also affect bond markets in unforeseen ways. Thus, most investors are better advised to purchase individual bonds only for the long-term.
If the investor decides to execute the trade, the involved bond desks will transfer the appropriate funds and bonds in a similar fashion to the way stock trades are settled.
The Securities Industry and Financial Markets Association, or SIFMA, acts as the Bond Market Association, while FINRA, acts as the self-regulatory association of the broker-dealers.
Investors interested in investing in bonds without engaging in the quirks of the bond market, can purchase bonds either directly from the issuer, in the case of new issues, or through bond mutual funds.