A very popular way to categorize debt instruments is to distinguish between public and private debt.
In fact, when you read about debt in the financial press, quite often they will use these terms private and public to refer to specific parts of the debt market. But while these terms sound quite straightforward, there's a twist. They can mean different things depending on the context in which they're used.
Most often, the terms public and private debt are used to distinguish between debt instruments depending on the type of borrower. In this first dimension, the term public debt refers to government debt. It's the money borrowed by countries and local governments to build things like roads and schools and to pay for public services. You might have heard of government bonds or treasuries by contrast. Private debt in this context refers to debt taken on by the private sector. This includes individuals, private households, but also businesses, corporations, and also not-for-profit organizations. As mentioned, the use of these two terms in this context is widespread. For example, the IMF distinguishes between public and private debt in their global debt monitor, referring to government debt and also debt taken on by the private sector respectively. In the second dimension, the distinction between public and private debt is not made by looking at the debtor or issuer, but instead at the markets on which the debt instruments are traded. In this context, public debt refers to debt instruments that are traded in a public market. A good example of this are bonds that are traded on exchanges or electronic trading platforms. Private debt in this dimension consequently refers to debt instruments that are negotiated outside of those public markets, which would typically be the case for loans. It is also worth noting that when we talk about equity as opposed to debt, we use the same distinction with publicly traded equity being that which is traded on an exchange to conclude. In order to avoid confusion, it's important to interpret the terms public and private debt in the context in which they're used.
