Lesson 1 of 5 · 12 min
Bonds, issuers, maturity and principal
A fixed-income instrument is a contract in which a borrower takes investors' money today and commits to pay interest and repay principal on set dates, and its first features are who borrows, for how long and how much.
In short
- Fixed-income instruments are debt: loans (private agreements, usually with a bank) and bonds (standardised, tradeable securities sold to investors).
- Every fixed-income instrument is a liability, but not every liability (payables, leases, pensions) is a fixed-income instrument.
- Key features: issuer, maturity, principal, coupon rate and frequency, seniority and contingency provisions. Together they define the cash flows.
- Issuers: sovereign and local governments, supranationals, quasi-government agencies, corporations and special purpose entities (which issue ABS). Sovereigns are usually the lowest credit risk in their region.
- Tenor = time left to maturity. One year or less at issue: money market; more than one year: capital market. Perpetual bonds have no maturity date.
Unlock this lesson free for 7 days
Create a free account to get 7 days of full access — every lesson, video, flashcard, mock and the question bank. No card needed.