FIXED INCOME

INTRODUCTION TO FIXED INCOME

Fixed Income has historically played, and will continue to play, a crucial role in financial markets.


As of 2015, fixed income markets represented 65% of all securities outstanding globally, thus dwarfing equities. McKinsey last cited the global debt market at approximately $93 trillion.

PREFERRED STOCKS

A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting rights.


The precise details as to the structure of preferred stock is specific to each corporation. However, the best way to think of preferred stock is as a financial instrument that has characteristics of both debt (fixed dividends) and equity (potential appreciation). Also known as "preferred shares".

TREASURY SECURITIES

Treasury securities are government debt instruments issued by the United States Department of the Treasury to finance the national debt of the United States.


There are four types of marketable Treasury securities: Treasury bills, Treasury notes, Treasury bonds, and Treasury Inflation Protected Securities (TIPS).


There are approximately $18 trillion of Treasury securities outstanding.

MUNICIPAL BONDS

Municipal bonds, often called munis, are considered a debt instrument because when the investor purchases one, he or she is essentially loaning funds to the authority that issued it. In exchange, the authority promises to pay interest, called the coupon rate, during the years prior to maturity, at which point it repays the bond's par value.

CORPORATE BONDS

Corporate bonds are debt securities issued by a corporation and sold to investors. The backing for such bond is usually the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company's physical assets may be used as collateral for bonds.

Corporate bonds are considered higher risk than government bonds. As a result, interest rates are almost always higher, even for top-flight credit quality companies.

ASSET BACKED SECURITIES

A financial security backed by a loan, lease or receivables against assets other than real estate and mortgage-backed securities. For investors, asset-backed securities are an alternative to investing in corporate debt.

An ABS is essentially the same thing as a mortgage-backed security, except that the securities backing it are assets such as loans, leases, credit card debt, a company's receivables, royalties and so on, and not mortgage-based securities.

 

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