Debt Security

Loading the player...

What is 'Debt Security'

Debt security is 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."

BREAKING DOWN '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. Security

    A financial instrument that represents an ownership position ...
  2. Secured Debt

    Debt backed or secured by collateral to reduce the risk associated ...
  3. Bond Fund

    A fund invested primarily in bonds and other debt instruments. ...
  4. Bond Market

    The environment in which the issuance and trading of debt securities ...
  5. Corporate Bond

    A debt security issued by a corporation and sold to investors. ...
  6. Corporate Inflation-Linked Securities

    Corporate debt financing securities that offer their holders ...
Related Articles
  1. Investing Basics

    What's a Debt Security?

    A debt security is a financial instrument issued by a company (usually a publicly traded corporation) and sold to an investor.
  2. Bonds & Fixed Income

    Understand the Security Types of Corporate Bonds

    Any investor should be aware of the different security types regarding corporate bonds as well as the direct correlation to potential recovery rates.
  3. Professionals

    Debt (Long-Term, Short-Term, Secured and Unsecured)

    Debt (Long-Term, Short-Term, Secured and Unsecured)
  4. Investing

    Advising FAs: Explaining Bonds to a Client

    Most of us have borrowed money at some point in our lives, and just as people need money, so do companies and governments. Companies need funds to expand into new markets, while governments need ...
  5. Professionals

    Debt Securities

    Series 62
  6. Professionals

    The Bond Market

    We look at the market where debt securities are issued and traded.
  7. Investing Basics

    Will Corporate Debt Drag Your Stock Down?

    Borrowed funds can mean a leg up for companies or the boot for investors. Find out how to tell the difference.
  8. Retirement

    Bond Basics: Different Types Of Bonds

    Government Bonds In general, fixed-income securities are classified according to the length of time before maturity. These are the three main categories: Bills - debt securities maturing in less ...
  9. Bonds & Fixed Income

    Explaining Government Bonds

    A government bond is a debt security a government issues.
  10. Investing

    What are Debt Instruments?

    A debt instrument is a documented financial obligation that enables the issuer to raise funds by borrowing money and repaying it in the future.
RELATED FAQS
  1. How do I evaluate a debt security?

    Look at a brief overview of the important factors to consider before purchasing a debt security, such as a corporate or government ... Read Answer >>
  2. What forms of debt security are available for the average investor?

    Discover the various different types of debt securities, issued by government entities or corporations, that are available ... Read Answer >>
  3. How does an investor make money on bonds?

    Bonds are part of the family of investments known as fixed-income securities. These securities are debt obligations, meaning ... Read Answer >>
  4. What are some common examples of marketable securities?

    Learn about marketable securities and the most common types of both debt and equity securities, including common stock, bonds ... Read Answer >>
  5. What is the difference between secured and unsecured debt?

    Understand the difference between secured and unsecured debt and how the reliability and trustworthiness of the issuing entity ... Read Answer >>
  6. What are the main categories of debt?

    Learn about the different types of debt available for consumers including secured debt, unsecured debt, revolving debt and ... Read Answer >>
Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center