Fixed Income

Bonds, or fixed income securities, offer a fixed payment over time. The biggest risk is that the issuer defaults and is not able to pay back the principal or coupons due.
Frequently Asked Questions
  • What is a fixed rate bond?

     A fixed rate bond is a bond that pays the same level of interest over its entire term, in contrast with a floating or variable rate bond. To earn a guaranteed interest rate for a specified term you can purchase a fixed rate bond in the form of a Treasury, corporate bond, municipal bond, or certificate of deposit (CD). Because of their constant and level interest rate, these are known broadly as fixed-income securities.

  • Is Social Security fixed income?

    Yes. Once you start taking social security, it is a fixed amount, so in that sense it is fixed income. But, a fixed income security pays out a set level of cash flows to investors, typically in the form of fixed interest or dividends, until a preset maturity date.

  • What happens to fixed income securities when interest rates rise?

    Fixed income securities have an inverse relationship to interest rates. When interest rates rise, bond prices usually fall, and vice-versa. This is most clearly illustrated in a zero-coupon bond, issued at a discount to par value, with their yields a function of the purchase price, the par value, and the time remaining until maturity. However, zero-coupon bonds also lock in the bond’s yield.

  • What is the difference between equity and fixed income securities?

    Equities, such as stocks, are a different asset class from bonds, also known as fixed income securities. Each asset class features dramatically different structures, payouts, returns, and risks. Stocks generally outperform bonds over time due to the equity risk premium that investors enjoy over bonds.

  • Are mortgage-backed securities fixed income?

    Yes. Mortgage-backed securities (MBS) is one of the most important types of asset classes within the fixed-income sector. MBS are created from the pooling of mortgages that are sold to interested investors.

Key Terms

Explore Fixed Income

Debenture vs. Bond: What's the Difference?
Convexity in Bonds: Definition, Meaning, and Examples
Convertible Bond: A fixed-income, interest-paying debt security that can be converted into common stock.
Convertible Bond: Definition, Example, and Benefits
Debenture Explained, With Types and Features
Default: What It Means, What Happens When You Default, Examples
What Is a Junk Bond? Definition, Credit Ratings, and Example
Repurchase Agreement
Repurchase Agreement (Repo): Definition, Examples, and Risks
Treasury Bills
Treasury Bills (T-Bills): What You Need to Know to Invest
Original Issue Discount (OID)
Original Issue Discount (OID): Formula, Uses, and Examples
U.S. War Savings Bond
War Bonds
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U.S. Bonds vs. Bills vs. Notes: What's the Difference?
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How to Calculate Yield to Maturity of a Zero-Coupon Bond
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Yield to Maturity (YTM) vs. Spot Rate: What's the Difference?
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Yield vs. Interest Rate: What's the Difference?
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What Is a Call Provision? How It Works in Real Esate and Example
Clean Price: What it Means, Overview and Examples
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Discount Bond: Definition, Using Yield to Maturity, and Risks
What Is a Premium Bond? Definition, How It Works, and Yield
Heath-Jarrow-Morton (HJM) Model: What it Means, How it Works
Duration and Convexity to Measure Bond Risk
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Asset-Backed Security – ABS vs. Collateralized Debt Obligation – CDO
Macaulay Duration vs. Modified Duration: What's the Difference?
Preference Shares vs. Debentures: What’s the Difference?
Woman Using Calculator
Yield vs. Return: What's the Difference?
Floating-Rate Note (FRN)
Floating-Rate Note (FRN): Here's What You Need To Know
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Sovereign Credit Rating: Definition, How They Work, and Agencies
Time Deposit (aka Term Deposit) Definition and How Does It Work?
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Spot Rate Treasury Curve: Definition, Uses, Example, and Formula
Interest Rate Risk
Interest Rate Risk Definition and Impact on Bond Prices
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Bondholder: Definition, Risks and Rewards, Taxes
CDs vs. Bonds: What’s the Difference?
U.S. Savings Bonds Series EE vs. Series I: Knowing the Difference
Term Deposit: Locking money up for a specific period of time to secure higher interest payments.
Term Deposit: Definition, How It's Used, Rates, and How to Invest
How Does an Investor Make Money On Bonds?
Where can I buy government bonds?
How to Compare the Yields of Different Bonds
Calculating the Macaulay Duration of a Zero-Coupon Bond in Excel
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Are High-Yield Bonds Safe?
Duration Definition and Its Use in Fixed Income Investing
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Hedge Your Bets with Inflation-Indexed Bonds
Government bonds written in a note.
How a Federal Bond Gets Issued
What Is the Difference Between a Gilt-Edged Bond and a Regular Bond?
How Do I Use the Holding Period Return Yield to Evaluate My Bond Portfolio?
Debt Financing: When a company raises money by selling debt instruments to investors.
How Debt Financing Works, Examples, Costs, Pros & Cons
Treasury Yield
Treasury Yield: What It Is and Factors That Affect It
U.S. Savings Bonds: Definition, How They Work, Types, and Taxes
Yields in Finance Defined: Formula, Types, and What It Tells You
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Time to Cash in Your U.S. Savings Bonds?
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How to Make Entries for Accrued Interest in Accounting
Inverted Yield Curve
Inverted Yield Curve: Definition, What It Can Tell Investors, and Examples
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When a Bond's Coupon Rate Is Equal to Yield to Maturity
Bond Valuation
Bond Valuation: Calculation, Definition, Formula, and Example
Corporate Bond: A debt security that is issued by a company to raise capital.
Corporate Bond: Definition and How They're Bought and Sold
$1000 Denomination US Savings Bonds
Treasury Bond: Overview of U.S. Backed Debt Securities
Convertible vs Reverse Convertible Bonds
Understanding Interest Rates, Inflation, and Bonds
Why Companies Issue Bonds
Commercial Paper
Commercial Paper: Definition, Advantages, and Example
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Yield Curve Risk: Overview, Types of Risk
Yield to Worst: The lowest potential yield that can be received on a bond without the issuer actually defaulting.
Yield to Worst (YTW): What It Is and the Formula to Calculate It