Next video:
Loading the player...

A debt security is a financial instrument issued by a company (usually a publicly traded corporation) and sold to an investor. The debt security represents a promise to pay back the face amount and interest until the instrument matures. 

There are many varieties of debt securities. The most common is a bond, including government bonds, corporate bonds, municipal bonds, collateralized bonds and zero coupon bonds.

Bonds are usually in the face amount of $1,000 with a stated interest rate. The face amount is sometimes referred to as the nominal amount. The interest rate is often referred to as the coupon rate.

The market for debt securities is substantially bigger than the equity market. Debt securities are owned and traded by individuals, institutional investors, and even governments.

Investors purchase debt securities because they seek a safer return than with riskier equities. Debt securities are rated for risk by various rating agencies such as S&P, Moody’s and Fitch. The risk rating is based on the agency’s assessment of the issuer’s ability to pay back the debt security’s interest and principal. The lower a debt security’s risk, the lower the interest rate. 

 

Related Articles
  1. Investing

    Corporate Bonds: Advantages and Disadvantages

    Corporate bonds can provide compelling returns, even in low-yield environments. But they are not without risk.
  2. Investing

    Explaining Government Bonds

    A government bond is a debt security a government issues.
  3. Insights

    The National Debt Explained

    We know it's growing, but we don't know exactly how. An in-depth look why the U.S. Government's debt continues to balloon and what it all means for you.
  4. Investing

    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.
  5. Investing

    An Introduction to Individual Bonds

    Individual bonds are better than bond funds and can be a key component to one’s investment strategy.
  6. Investing

    Explaining Debt Service

    Debt service is a measure of a person or entity’s use of cash to pay interest and principal on debt obligations.
  7. Investing

    Six Biggest Bond Risks

    Don't assume that you can't lose money in this market - you can. Find out how.
Hot Definitions
  1. Block (Bitcoin Block)

    Blocks are files where data pertaining to the Bitcoin network is permanently recorded.
  2. Fintech

    Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century.
  3. Ex-Dividend

    A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be ...
  4. Debt Security

    Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount ...
  5. Taxable Income

    Taxable income is described as gross income or adjusted gross income minus any deductions, exemptions or other adjustments ...
  6. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly AIMR) that measures the competence and integrity of financial ...
Trading Center