Section: 5 Capital Market Securities

Sub Section: 5 Fixed-Income Capital Market

The fixed-income capital market is composed of longer-term borrowing instruments than those that trade in the money market. The title ‘fixed-income’ is given to these securities as investors normally earn either a fixed stream of income or a stream of income that is determined according to a specific formula. These payments are fixed unless the issuer is declared bankrupt. Most common fixed-income securities include:

• Treasury Bonds: A marketable, fixed-interest government debt security with a maturity over 10 years. Treasury bonds are usually issued with a minimum denomination of $1,000.




•  Treasury Notes: A marketable, fixed-interest rate government debt security with a maturity between 1 and 10 years.




• Federal Agencies/Organizations Debt: A debt security issued by a federal agency and organization in order to finance its capital expenditures.




• Municipal Bonds: A debt security issued by a state, municipality, or county, in order to finance its capital expenditures. Municipal bonds are exempt from federal taxes and from most state and local taxes, especially if you live in the state the bonds are issued.




• Corporate Bonds: A debt security issued by a corporation. A corporate bond typically has a par value of $1,000, is taxable, has a term maturity, and is traded on a major exchange




• Mortgage-Backed Securities (MBS): An investment instrument that represents ownership of an undivided interest in a group of mortgages. Principal and interest from the individual mortgages are used to pay principal and interest on the MBS.




• Asset-Backed Securities: A security backed by notes or receivables against assets other than real estate. For example, assets such as loans, leases, credit cards, royalties, etc.

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