A debt instrument such as a bond, debenture or gilt-edged bond that investors use to loan money to a company in exchange for interest payments. A fixed-interest security pays a specified rate of interest that does not change over the life of the instrument. The face value is returned when the security matures. |||Fixed-interest securities are less risky than equities, since in the event that a company is liquidated, bondholders are repaid before shareholders. However, bondholders are considered unsecured creditors and may not get any or all of their principal back. Fixed-interest securities are also subject to interest-rate risk. Since their interest rate is fixed, these securities will become less valuable as rates go up in a rising-interest-rate environment. If interest rates fall, however, the fixed-interest security becomes more valuable.
Created by Morningstar, a fixed-income style box is designed to visually represent the investment characteristics of bonds and bond mutual funds. This is a valuable tool for investors to use to determine the risk-return structures of their bonds/ bond portfolios and/or how these investments fit into their investing criteria.Also referred to as a "bond style box". |||A fixed-income style box is made up of nine squares, with the investment features of bonds/bond mutual funds presented along its vertical and horizontal axes.For bonds and bond funds, the horizontal axis is divided into three maturity categories: short term, intermediate term and long term. The vertical axis is divided into three credit-quality categories: high (AAA - AA), medium (A - BBB) and low (BB - C). A fixed-income investor looking for safety would confine his or her bond or bond fund investments to the investment grade credit quality categories identified as high and medium, combined with the short- to intermediate-term maturity categories. For a risk taker, the category combination of low credit quality and long-term maturity will provide a high-risk, high-yield return.
An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. Unlike a variable-income security, where payments change based on some underlying measure such as short-term interest rates, the payments of a fixed-income security are known in advance. |||An example of a fixed-income security would be a 5% fixed-rate government bond where a $1,000 investment would result in an annual $50 payment until maturity when the investor would receive the $1,000 back. Generally, these types of assets offer a lower return on investment because they guarantee income.
An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income arbitrage strategy, the investor assumes opposing positions in the market to take advantage of small price discrepancies while limiting interest rate risk. |||Fixed-income arbitrage is primarily used by hedge funds and leading investment banks. The most common fixed-income arbitrage strategy is swap-spread arbitrage. This consists of taking opposing long and short positions in a swap and a Treasury bond. Such strategies provide relatively small returns and, in some cases, huge losses. That's why these strategies are often referred to as "picking up nickels in front of a steamroller"!
Describes an investment vehicle, usually some kind of debt instrument, that has a fixed time period of investment. With a fixed-term investment, the investor parts with his or her money for a specified period of time and is repaid his or her principal investment only at the end of the investment period. |||A common example of a fixed-term investment is a term deposit, in which the investor deposits his or her funds with a financial institution for a specified period of time and cannot withdraw the funds until the end of the time period, or at least not without facing an early withdrawal penalty. This is the opposite of a demand deposit, in which the investor is free to withdraw his or her funds at any time. As a price for the convenience of withdrawal at any time, demand deposits generally pay lower interest rates than term deposits.
A loan or mortgage with an interest rate that will remain at a predetermined rate for the entire term of the loan. Also known as a "fixed-rate mortgage". |||An estimated 70-80% of all home mortgages are fixed-rate.
A type of investing or budgeting style for which real return rates or periodic income is received at regular intervals at reasonably predictable levels. Fixed-income budgeters and investors are often one and the same - typically retired individuals who rely on their investments to provide a regular, stable income stream. This demographic tends to invest heavily in fixed-income investments because of the reliable returns they offer. |||Individuals who live on set amounts of periodically paid income face the risk that inflation will erode their spending power. Fixed-income investors receive set, regular payments that face the same inflation risk.The most common type of fixed-income security is the bond; bonds are issued by federal governments, local municipalities or major corporations.
An agency that deals with the /confirm/iation, settlement and delivery of fixed-income assets in the U.S. The agency ensures the systematic and efficient settlement of U.S. Government securities and mortgage-backed security transactions in the market. |||The FICC started operations at the start of 2003 and was created when the Government Securities Clearing Corporation and the Mortgage-Backed Security Clearing Corporation merged. The clearing corporation is divided into two sections: the government securities division and the mortgage-backed securities division.
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