Fixed Income Markets (MFM850)

Leben Johnson
10th Oct. 2019
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 Fixed Income Markets
• A debt instrument that pays interest periodically is called
a fixed income instrument or bond.
• A plain vanilla bond, is a debt instrument issued by a
borrower, promising to pay back the principal along with
interest/coupon to the lender.
• Typically principal is paid at the end of the maturity.
• Interest/coupon is paid at regular intervals (6-months or
annually).
• Interest is fixed through the bond life or term period.
• Interest payment is mandatory, else its default.

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 Fixed Income - Types

• The main issues of bonds are

– Government: Treasuries or T-bills, notes, bonds
– State Govts: Municipal Bonds
– Corporates

Treasuries:
Asset Backed Securities:
Mortgage Securities:

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 Fixed Income - Features
• Issuer
• Term or Maturity
– Short-term bonds : < 5years
– Medium-term or Intermediate bonds : 5 to 12 years
– Long-term bonds : > 12 years
• Coupon Rate or Interest or Nominal Rate
– Interest amount (annual) = Coupon Rate * Principal
– Floating rate bonds
– Zero Coupon bonds
• Principal
– Paid at the end of maturity
– Paid through the life of the bond, amortized.
• Embedded Options
– Call provision
– Put provision
– Convertible bonds
– Exchangeable bonds
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 Fixed Income - Description

• CUSIP
• Primary Market
– Issued through placements
• Secondary Market
– National Stock Exchange
– Bombay Stock Exchange
– Indices

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