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Finance: Investing Guide

Bonds & Fixed-Income Securities

Table of Contents

Bond & Fixed-Income
Security Terms

Definitions of the following terms are taken directly from Strauss’s Handbook of Business Information: A Guide for Librarians, Students, and Researchers, 2nd Edition by Rita W. Moss available in the Maag Stacks at call number Z7164 .C81 S7796 2004.

Fixed Income Securities: Debt securities, representing money lent to the issuing organization for a designated time period. They are, in effect, IOUs. Usually, the issuing organization agrees not only to repay the principal at some future date but also to make regular, fixed interest payments for the use of the money. Some fixed income securities are long-term loans, others are short term. Bonds fall into the first category.

Bonds: Long-term, fixed-income debt securities issued by corporations and governments to raise money. Bonds usually mature 10 years after they are issued, and some are issued for as long as 30 years. When a bond reaches maturity, the issuing organization is required to repay the principal, or face value, to the bondholder. Usually bonds are issued in $1,000 denominations or in multiples of $1,000. Others, called “baby bonds,” have face values of only $100 or $500.

Money Market Instruments: Short-term loans to various borrowers, federal and local governments, corporations, and banks are known collectively as money market instruments. These short-term obligations are issued by organizations with high credit ratings, are highly liquid (easily convertible into cash), and are generally of less than one year’s duration. Typical money market instruments include Treasury bills, commercial paper (short-term IOUs issued by corporations), and commercial bank certificates of deposit.

Federal Government Securities: The federal government issues a wide range of marketable securities. Some, known as direct government obligations, are issued by the Treasury Department. These include Treasury bills, notes, and bonds. Others, such as the issues of federal agencies and government-sponsored agencies, are not considered direct obligations but enjoy credit ratings almost as impressive as those assigned to Treasury issues. The high rating given to government securities is based on the federal government’s power to tax and print money. Risk of default on a U.S. government bond is nonexistent. As a result, government securities offer lower interest rates than do corporate debt obligations, which compensate for their greater risk by offering higher interest rates.

Municipal Issues: Issuance of debt securities is not limited to the federal government. State, city, town, and other units of local government and political subdivisions also issue bonds, referred to collectively as municipals or munis. They are also known as tax exempts because the interest earned on them is exempt from federal income tax and often from state and local income taxes, where they are issued. Because of this tax-exempt feature, municipals can pay a lower rate of interest and still be competitive with taxable bonds paying a higher rate of interest. Municipal securities are issued to help finance new roads, highways, bridges, schools, hospitals, libraries, sports and convention centers, airports, sewers, utilities, and other facilities. Unlike federal government securities, municipals are not sold directly to the public. Instead, municipals are sold to investment bankers or underwriters who in turn make them available to investors. There are two types of municipal bonds: general obligation bonds (secured by the full and unlimited taxing power of the government issuing the bonds) and revenue bonds (backed only by revenues from a specific project).

Corporate Securities: Corporations issue bonds and other debt securities. As with government securities, corporate securities can be classfied by length of time to maturity. Short-term corporate debt obligations are called commercial paper. Generally, commercial paper has a maturity from 90 to 180 days, and since it is traded in minimum denominations of $100,000, is only indirectly purchased by individual investors via money market funds. Corporate bonds are usually issued in denominations of $1,000 or $5,000, making them a more likely target for the individual investor. As on many government and municipal bonds, interest is generally issued semiannually. Corporate bonds usually have maturities of from 20 to 30 years.

Bond & Fixed-Income Security Reference Resources

  • The Handbook of Fixed-Income Securities REF HG4651 .H265 1995
    Information about fixed income securities, how to evaluate them, and how they can be used to enhance returns. Thorough analysis of the most widely used fixed income securities and their attendant risks. The book covers bonds, money market instruments, mortgage-backed securities, asset-backed securities, and derivatives, including futures/forward contracts, options, interest rate swaps, and interest rate agreements (caps and floors).
  • The Handbook of Mortgage-Backed Securities REF HG4655 .H36 1995
    Coverage of every aspect of the mortgage-backed securities market. Authoritative and comprehensive, the book explains both the fundamentals and investment characteristics of mortgage-backed securities, as well as strategies for capitalizing on opportunities. Divided into 8 sections: Mortgages and Pass-Through Securities; Prepayment Behavior and Forecasting; Stripped Mortgage-Backed Securities; Collateralized Mortgage Obligations; Commercial Mortgage Backed Securities; Valuation Techniques and Risk Management; Hedging Strategies; Accounting and Tax Considerations.
  • Mergent Bond Record REF HG4905 .M78 Quarterly Publication
  • Mergent Annual Bond Record REF HG4651 .M617 Annual Publication
    Corporates, Convertibles, Governments, Municipals, Includes Global Ratings. Covers fixed-income issues in detail, affording the user at a glance the essential facts relating to market position and statistical background.

Business Databases: Bond Reports

  • STANDARD & POOR’S NETADVANTAGE / OFF CAMPUS ACCESS / S&P NETADVANTAGE USER GUIDE
    • Comprehensive source of business and investment information, offering online access to popular Standard & Poor’s research products, such as Industry Surveys, Stock Reports, Bond Reports, Corporation Records, The Register of Corporations, Directors and Executives, among others
    • To access a company’s Standard & Poor’s Bond Report, in Publication Search box in right column choose Bond Reports from Select Publication dropdown menu
    • Select Ticker or Company Name from Search by dropdown menu
    • Enter company name or ticker in Enter box and click on arrow to access S&P Bond Report
  • MERGENT ONLINE / OFF CAMPUS ACCESS / MERGENT ONLINE USER GUIDE
    • Provides business information, including financial reports, company news and securities data
    • Contains company data and annual reports for both U.S. and international companies
    • U.S. company data includes SEC (EDGAR) filings
    • Financial information is downloadable to Microsoft Excel
    • Search by Company Name or Ticker Symbol; Use tabs across the top of company profile to view Company Details, Company Financials, Create Reports (make customized reports), EDGAR (SEC filings), and News
    • Under Company Details tab, use the Long Term Debt tab to find corporate securities information

Web Resources for Bonds & Fixed-Income Securities

  • BondClass
    A comprehensive educational site for individual as well as institutional bond investors. Over 700 pages of educational content written in easy-to-understand language.
  • BondsOnline
    Access to and extensive coverage of over 3.5 million stocks, bonds, indexes and other securities covering major and emerging markets and exchanges across the globe.
  • BONDTALK.com
    Independent and actionable information, analysis, and insights on the bond market and the economy. Current news, composite bond rates, yield curves, economic data, market indicators, market calendars, and Federal Reserve information, including FOMC Hawk/Dove Scale and interest rate expectation “FED-O-METER”.
  • BONDTALK.com: Bond Basics/Education
    A refresher course in Bond Basics, along with bond ratings definitions, trading tips, and financial and fixed-income glossaries.
  • BondVillage.com
    A bond advisory service providing high quality, unbiased bond information and investment ideas focused on the needs of the individual investor and the professionals who serve them.
  • Bureau of the Public Debt
    Their job is to borrow the money needed to operate the federal government and to account for the resulting debt. They borrow by selling Treasury bills, notes, and bonds, as well as U.S. Savings Bonds; they pay interest to investors; and, when the time comes to pay back the loans, redeem investors’ securities. Every time they borrow or pay back money, it affects the outstanding debt of the United States.
  • InvestinginBonds.com
    Unique source of bond price information and includes a wide variety of market data, news, commentary and information about bonds. The site has been ranked as a top investor site for bonds by Money, CNBC, Forbes and others and is continually enhanced and updated with new data, information and features. The site was created by The Securities Industry and Financial Markets Association to help educate investors.
  • InvestinginBonds.com: Glossary of Bond Terms
  • MSRB: Municipal Securities Rulemaking Board
    The MSRB makes rules regulating dealers who deal in municipal bonds, municipal notes, and other municipal securities. This site contains useful information for municipal securities investors, dealers and the general public.
  • TreasuryDirect
    Overviews regarding U.S. Treasury bonds, notes, bills, and TIPS. Also, you can obtain basic information about the different types of savings bonds, including EE/E, I and HH/H bonds. TreasuryDirect is the first and only financial services website that lets you buy and redeem securities directly from the U.S. Department of the Treasury in paperless electronic form. Product information and research across the entire line of Treasury Securities, from Series EE Savings Bonds to Treasury Notes. New TreasuryDirect accounts offer Treasury Bills, Notes, Bonds, Inflation-Protected Securities (TIPS), and Series I and EE Savings Bonds in electronic form in one convenient account.

One Response to “Bonds & Fixed-Income Securities”

  1. Conner F., on April 23rd, 2009 at 6:06 am Said:

    We are still optimistic that in 2009 the economy will bounce back. Anyway when you are going to make an investment it is good to diversify your funds especially if it involves a large amount of money. Think twice before you invest especially now that the economic condition is not yet stable. IBonds are a new series of Treasury bonds that are backed by Treasury guarantee to never lose money. However, you won’t be able to withdraw if you’re staring down the barrel of needing no fax payday loans. You can’t withdraw the interest for the first year at all, and then the first five years carry penalties for withdrawal. They stop accruing interest after thirty. They are geared towards being a solid long term investment. You also cannot buy it for anyone other than yourself, so you can’t have your children’s buying IBonds.

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