Debt Security

AAA

DEFINITION of 'Debt Security'

Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount borrowed), interest rate and maturity/renewal date. Debt securities include government bonds, corporate bonds, CDs, municipal bonds, preferred stock, collateralized securities (such as CDOs, CMOs, GNMAs) and zero-coupon securities.

The interest rate on a debt security is largely determined by the perceived repayment ability of the borrower; higher risks of payment default almost always lead to higher interest rates to borrow capital.

Also known as "fixed-income securities."

INVESTOPEDIA EXPLAINS 'Debt Security'

Most debt securities are traded over-the-counter, with much of the trading now conducted electronically. The total dollar value of trades conducted daily in the debt markets is much larger than that of stocks, as debt securities are held by many large institutional investors as well as governments and non-profit organizations.

Debt securities on the whole are safer investments than equity securities, but riskier than cash. Debt securities get their measure of safety by having a principal amount that is returned to the lender at the maturity date or upon the sale of the security. They are typically classified and grouped by their level of default risk, the type of issuer and income payment cycles.

RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Collateralized Mortgage Obligation ...

    A type of mortgage-backed security in which principal repayments ...
  3. Collateralized Debt Obligation ...

    An investment-grade security backed by a pool of bonds, loans ...
  4. Debt

    An amount of money borrowed by one party from another. Many corporations/individuals ...
  5. Ginnie Mae - Government National ...

    A U.S. government corporation within the U.S. Department of Housing ...
  6. Zero-Coupon Bond

    A debt security that doesn't pay interest (a coupon) but is traded ...
RELATED FAQS
  1. What kinds of financial instruments are designated as “Securities” by Cabinet Order?

    In Japan, securities are regulated by the Diet and the Financial Services Agency, or FSA. Rulings about securities come down ... Read Full Answer >>
  2. What are some of the arguments in favor of debt securitization?

    Debt securitization, or instrument securitization as a whole, received a bad reputation following the financial crisis of ... Read Full Answer >>
  3. What is face value and how is it determined?

    Face value is defined as "the nominal value or dollar value of a security stated by the issuer." It is determined by the ... Read Full Answer >>
  4. Why should investors research the C-suite executives of a company?

    C-suite executives are essential for creating and enacting overall firm strategy and are therefore an important aspect of ... Read Full Answer >>
  5. Can a business ever be too small to issue commercial paper?

    There are effective – though not legal – restrictions on the size of commercial paper issuers. Any company can issue commercial ... Read Full Answer >>
  6. How can I create a yield curve in Excel?

    You can create a yield curve in Microsoft Excel if you are given the time to maturities of bonds and their respective yields ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    A Look At National Debt And Government Bonds

    Learn the functions of the U.S. Treasury, and find out how and why it issues debt.
  2. Investing

    The Advantages Of Bonds

    Bonds contribute an element of stability to almost any portfolio and offer a safe and conservative investment.
  3. Bonds & Fixed Income

    Corporate Bonds: An Introduction To Credit Risk

    Corporate bonds offer higher yields, but it's important to evaluate the extra risk involved before you buy.
  4. Bonds & Fixed Income

    Savings Bonds For Income And Safety

    Bonds offer undeniable benefits to investors, including safety and tax advantages.
  5. Credit & Loans

    Build America Bonds: Should You Buy?

    BABs are part of the recovery act created by the Obama administration. Find out how they work and whether they could work for you.
  6. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  7. Bonds & Fixed Income

    Advanced Bond Concepts

    Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration.
  8. Stock Analysis

    Google Stock: A Tale of Two Share Classes

    Google stock comes in two different flavors with different rights for shareholders.
  9. Professionals

    Why You Should Avoid Fixating on Bond Duration

    Financial advisors and their clients should then focus on a bond fund’s portfolio rather than relying on any single metric like duration.
  10. Investing

    The Case For Stocks Today

    Last week, U.S. equities advanced with the S&P 500 Index notching new records. Investors are now getting nervous with rate and currency volatility spiking.

You May Also Like

Hot Definitions
  1. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  2. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  3. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  6. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
Trading Center