FIXED–INCOME SECURITIES –
BASICS
Reference: Chapter 1 (PET) + Other Notes
2020–01–16
Copyright: CFA Institute and
FinanceTraining.ca 1
Presented By:
M. EMRUL HASAN, CFA, FRM, PhD
Visiting Lecturer, Beedie School of
Business, Simon Fraser University
Lecturer, Vancouver School of
Economics, UBC
Director of Learning, FinanceTraining.ca
1. INTRODUCTION
WHAT IS A FIXED–INCOME SECURITY?
•A fixed–income security is a financial obligation of an
entity (the issuer) that promises to pay a specified sum of
money at specified future dates. However, the payments
sometimes may vary.
•A fixed–income security is an instrument that allow
governments, companies, and other types of issuers to
borrow money from investors.
–Any borrowing of money is debt.
•The terms “fixed–income securities,” “debt securities,” and
“bonds” are often used interchangeably.
22020–01–16Copyright: CFA Institute and FinanceTraining.ca
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Source: Ontario Securities Commission
2. OVERVIEW OF A
FIXED–INCOME SECURITY
•There are three important elements investors need to
consider when investing in a fixed–income securities:
•All bonds, whether they are traditional or securitized bonds,
are characterized by the same basic features.
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The bond features, including the issuer, maturity, par value,
coupon rate and frequency, and currency denomination.
The legal, regulatory, and tax considerations.
The contingency provisions that may affect the bond’s
scheduled cash flows.
2020–01–16Copyright: CFA Institute and FinanceTraining.ca
BASIC FEATURES OF A BOND
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Issuer
supranational
organization
sovereign (national)
government
non–sovereign (local)
government
quasi–government entity
company
•investment–grade
bonds
•non–investment–grade
bonds
Creditworthiness
2020–01–16Copyright: CFA Institute and FinanceTraining.ca
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Source: TD Securities
2020–01–16Copyright: CFA Institute and FinanceTraining.ca
BASIC FEATURES OF A BOND
Maturity
•The maturity date is the date when the issuer is obligated to
redeem the bond.
•The tenor, also known as term to maturity, is the time
remaining until the bond’s maturity date.
•Money market securities are fixed–income securities with maturity
