View source for Fixed-income security

'''[[Fixed-income security]]''' is a [[financial instrument]] that provides investors with a contractual claim to receive predetermined or formula-based payments of interest, principal, or both over a specified period. Unlike [[stock]]s, which represent ownership interests in a company, fixed-income securities represent debt obligations issued by governments, corporations, financial institutions, municipalities, or supranational organizations to raise capital. Investors purchase these securities in exchange for periodic income payments and the repayment of principal at maturity or according to agreed contractual terms. Fixed-income securities constitute one of the principal asset classes in global financial markets and are widely used for income generation, capital preservation, portfolio diversification, and risk management.

==History==

The origins of fixed-income securities can be traced to the development of public borrowing by governments in ancient and medieval societies. Organized debt markets emerged during the Renaissance, particularly in Italian city-states such as [[Venice]] and [[Florence]], where governments issued debt obligations to finance public expenditures.

During the seventeenth and eighteenth centuries, the growth of national governments and international trade contributed to the expansion of government bond markets. The establishment of institutions such as the [[Bank of England]] facilitated the issuance and trading of sovereign debt.

The nineteenth and twentieth centuries witnessed substantial growth in corporate debt markets as industrialization increased demand for long-term financing. Today, fixed-income securities are issued by a wide range of public and private entities and are traded in domestic and international capital markets.

==Characteristics==

Fixed-income securities generally possess several common characteristics.

{| class="wikitable"
! Characteristic
! Description
|-
| Issuer
| Entity that borrows funds
|-
| Principal (Face value)
| Amount to be repaid to investors
|-
| Coupon rate
| Interest rate payable on the principal
|-
| Maturity date
| Date on which principal becomes due
|-
| Interest payments
| Periodic payments made to investors
|-
| Yield
| Return earned based on market price
|-
| Credit quality
| Assessment of the issuer's ability to repay obligations
|}

Although many fixed-income securities pay fixed interest, some provide variable or inflation-linked payments.

==Types==

Fixed-income securities encompass a broad range of debt instruments.

Major categories include:

* [[Bond]]
* [[Government bond]]
* [[Corporate bond]]
* [[Municipal bond]]
* [[Treasury security]]
* [[Agency bond]]
* [[Supranational bond]]
* [[Floating-rate note]]
* [[Zero-coupon bond]]
* [[Inflation-indexed bond]]
* [[Commercial paper]]
* [[Certificate of deposit]]
* [[Asset-backed security]]
* [[Mortgage-backed security]]

These instruments differ in terms of issuer, maturity, credit quality, payment structure, and risk characteristics.

==Issuers==

Fixed-income securities may be issued by a variety of entities.

Common issuers include:

* national governments;
* subnational governments;
* municipalities;
* corporations;
* banks and financial institutions;
* government agencies;
* supranational organizations.

The creditworthiness of the issuer is a significant factor influencing the pricing and yield of the security.

==Pricing==

The market price of a fixed-income security is influenced by numerous factors.

These include:

* prevailing interest rates;
* credit quality;
* remaining maturity;
* inflation expectations;
* market liquidity;
* supply and demand;
* macroeconomic conditions.

In general, prices of fixed-income securities move inversely to market interest rates.

==Yield==

Several measures are used to evaluate the return on fixed-income securities.

Common yield measures include:

* coupon yield;
* current yield;
* yield to maturity;
* yield to call;
* yield to worst.

Yield to maturity is among the most widely used measures because it estimates the annualized return if the security is held until maturity and all contractual payments are received.

==Risks==

Investment in fixed-income securities involves several forms of risk.

Major risks include:

* interest rate risk;
* credit risk;
* default risk;
* inflation risk;
* reinvestment risk;
* liquidity risk;
* currency risk;
* call risk.

The relative importance of these risks varies according to the characteristics of the issuer and the security.

==Credit ratings==

Many fixed-income securities are evaluated by independent [[credit rating agency|credit rating agencies]].

Major international agencies include:

* [[Moody's Ratings]];
* [[S&P Global Ratings]];
* [[Fitch Ratings]].

Credit ratings provide an assessment of the issuer's capacity to meet its financial obligations and are widely used by investors when evaluating investment risk.

==Applications==

Fixed-income securities are widely used throughout global financial markets.

Major applications include:

* government financing;
* corporate financing;
* infrastructure financing;
* portfolio diversification;
* retirement investing;
* income generation;
* capital preservation;
* monetary policy implementation;
* liquidity management.

They are commonly held by pension funds, insurance companies, sovereign wealth funds, mutual funds, central banks, and individual investors.

==Relationship with other financial instruments==

Fixed-income securities differ from several other investment instruments.

{| class="wikitable"
! Instrument
! Represents
! Typical return
! Ownership
|-
| Fixed-income security
| Debt obligation
| Interest income and principal repayment
| Creditor
|-
| [[Stock]]
| Equity ownership
| Dividends and capital appreciation
| Shareholder
|-
| [[Mutual fund]]
| Investment fund units
| Depends on underlying assets
| Unit holder
|-
| [[Exchange-traded fund]]
| Investment fund shares
| Depends on underlying assets
| Shareholder
|}

Unlike equity securities, fixed-income securities generally provide contractual payment obligations, although repayment remains subject to the issuer's financial capacity.

==Impact==

Fixed-income securities constitute one of the largest segments of global financial markets and play a central role in capital formation, government finance, corporate borrowing, and monetary policy implementation. They provide issuers with access to long-term funding while offering investors opportunities for relatively stable income, portfolio diversification, and risk management. The widespread use of fixed-income securities has also contributed to the development of bond markets, collective investment schemes, pension systems, and global capital markets.

==See also==

* [[Bond]]
* [[Bond market]]
* [[Bond market index]]
* [[Government bond]]
* [[Corporate bond]]
* [[Municipal bond]]
* [[Treasury security]]
* [[Coupon (finance)]]
* [[Yield to maturity]]
* [[Interest rate]]
* [[Credit rating]]
* [[Credit rating agency]]
* [[Stock]]
* [[Investment fund]]
* [[Capital market]]