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
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How Convertible Bonds Benefit Investors and Companies
What are the Features and Risks of Debentures?
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Default
What Are Junk Bonds and How are Junk Bonds Rated?
Repurchase Agreement (Repo) Definition
$1000 Denomination US Savings Bonds
Treasury Bills (T-Bills)
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How Original Issue Discount – OID Work
U.S. War Savings Bond
How War Bonds Originated and How Investors Made Money on them
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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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How a Call Provision Benefits Investors and Companies
What Is the Clean Price?
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Factors that Create Discount Bonds
How a Premium Bond Works and Why They Cost More
Measuring Bond Risk With Duration and Convexity
Pros and Cons of Money Market Funds
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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?
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What Is the Difference Between Yield and Return?
How Floating-Rate Note (FRN) Benefit From Rising Interest Rates
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Sovereign Credit Rating
Comparing Time Deposit or Certificates of Deposit Rates Between Banks
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Understanding the Spot Rate Treasury Curve
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Interest Rate Risk Definition
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The Benefits and Risks of Being a Bondholder
CDs vs. Bonds: Which Is a Better Investment?
U.S. Savings Bonds: Series EE vs. Series I: What's the Difference?
Term Deposit Definition
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-Risk Bonds Really Too Risky?
Duration in Investing: How It Works, Types, and Strategy
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Hedge Your Bets with Inflation-Linked Bonds
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How T-Bonds Get Sold
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
Government Bond
Treasury Yield
U.S. Savings Bonds
Understanding What Yield Involves
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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
What Is an Inverted Yield Curve?
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When is a bond's coupon rate and yield to maturity the same?
How Bond Valuation Works
What Is a Corporate Bond?
$1000 Denomination US Savings Bonds
Treasury Bond (T-Bond)
How Do Convertible and Reverse Bonds Differ?
Understanding Interest Rates, Inflation, and Bonds
Why Companies Issue Bonds
What Is Commercial Paper?
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What is Yield Curve Risk?
Yield to Worst (YTW)