Fixed Invoice
Fixed-income securities are debt instruments issued by governments or corporations to raise capital. Investors lend money in exchange for periodic interest payments and the return of principal at maturity. Bonds are the most common type of fixed income instrument. Most bonds pay a fixed rate of interest over the life of the instrument. A floating interest rate bond or loan has a variable rate.
Bond price and yield are inversely related. If prices price, the yield falls. Bonds tend to have an inverse relationship to interest rates. When interest rates rise, bond prices tend to fall.
Government issued securities tend to be listed on the national stock exchange. Bonds and other forms such as US Treasury Notes or UK Gilts (UK government bonds) might typically have a 2 – 30-year maturity. Short-term fixed income securities include Treasury Bills with a 4 – 52-week term, which do not pay interest. Other public issues securities include municipal bonds issued by states, cities or counties.
Corporate bonds are debt securities issued by companies to raise funds.
Credit rating agencies provide financial analysis to assist investors measure their risk to countries and companies. These are an assessment of risk and do not guarantee an investment is safe. Investment grade bonds have a rating suggesting exposure to debt of a higher quality (low – moderate credit risk). Non-investment grade rating descriptions span substantial and high credit risk ratings to issues currently in default.
Types of Bonds
Government Bonds
Issued by national governments and considered low risk
Corporate Bonds
Issued by companies to raise capital, with varying levels of risk depending on the company’s creditworthiness
Municipal Bonds
Issued by local governments or municipalities, often tax-exempt
Key Features of Bonds
Face Value
The amount the bond will be worth at maturity, and the amount the issuer agrees to pay back to the bondholder/Investor
Coupon Rate
The interest rate the issuer pays to the bondholder/Investor, usually expressed as a percentage of the face value
Maturity Date
The date on which the bond’s principal amount is to be paid back to the bondholder/Investor in full
Issuer
The entity that issues the bond, which can be a corporation, government, or municipality
Credit Quality
A measure of the issuer’s ability to repay the bond, which affects the bond’s interest rate and price
Yield
The rate of return on the bond, which can be influenced by the bond’s price, coupon rate, and time to maturity
Bonds are a popular investment choice for those seeking steady income and lower risk compared to stocks. They can also help diversify an investment portfolio. Bonds can be secured or unsecured and may have additional features such as call provisions, which allow the issuer to redeem the bond before its maturity date.
