Fixed Income Securities

This is the risk that the bond/bill issuer or borrower is unable to meet the coupon or principal payments on any outstanding bonds or debt (not just the instruments you may be holding) when they fall due (for example, due to bankruptcy or insolvency), and go into default.

A bond is a debt security where the bond issuer (borrower) issues the bond for the purchase by the bondholder (the lender).  It is also known as a fixed income security, as a bond usually gives the investor regular or fixed income.

• Regular Income: Bond issuers are bound by the terms of the bond to pay out regular coupon income to the bondholders (subject to credit risk of the issuer)
• Hedge against inflation: With proper bond selection, you may potentially earn an investment return which keeps pace with or even exceeds the inflation rate
• Capital appreciation: Like all instruments traded in the secondary market, the price of a bond can appreciate (or depreciate) over and above (or below) the initial purchase price, and allow to realise capital gains (or losses)

A regular fixed income the client can enjoy over a long-term period, and is capital guaranteed to maturity (subject to credit risk of the issuer)

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Securities are financial instruments that show the relationship between a creditor and the corporation or government.

Fixed income security holders are creditors of the issuers, not the owners, while fixed income equity is the owners of the issuers.

Fixed interest rate securities refers to an unchanged rate applied throughout the tenor of an investment while the floating rate fluctuates based on the movement of a pre-determined benchmark.

There are 3 key components when it comes to fixed-income securities. They are credit quality, yield, and maturity.

Credit quality indicates the ability of the issuer of the fixed income security to pay back his obligation.

Yield on a security is the interest provided by security over its life, given its current market price. This is the return earned on a transaction.

Maturity refers to the time period when a financial instrument will cease to exist, and principal is repaid.

A coupon rate is the rate of interest an instrument pays at periodic intervals while the yield is the eld is the rate of return the interest generates.

Long term securities offer more than short term securities because money lent out for a longer time will have a higher yield.

Factors that determine rate are commonly called macroeconomic as they are known to be economy related. The factors include Demand for money, Government borrowings, supply of money, inflation rate, etc.

Auction is a sale where market players make competitive bids on an instrument. It can be used for price discovery.

A coupon rate is the rate of interest an instrument pays at periodic intervals.

A bond redemption is the full repayment of the principal amount (the amount you invested) and any interest owed to date.

The current yield of a bond calculates the rate of return on a bond by using the market price of the bond instead of its face value. Current yield price is derived by dividing the coupon rate by the current price of the bond.