Chapter 9
Fixed-Income Securities*
The next two chapters provide an overview of fixed-income markets, securities, and their derivatives. At the most basic level, fixed-income securities refer to bonds that promise to make fixed coupon payments. Over time, this narrow definition has evolved to include any security that obligates the borrower to make specific payments to the bondholder on specified dates. Thus, a bond is a security that is issued in connection with a borrowing arrangement. In exchange for receiving cash, the borrower becomes obligated to make a series of payments to the bondholder.
Section 9.1 provides an overview of the different segments of the bond market. Section 9.2 then introduces the various types of fixed-income securities. Section 9.3 reviews the basic tools for pricing fixed-income securities, including the determination of cash flows, discounting, and the term structure of interest rates, including yields, spot rates, and forward rates. Finally, Section 9.4 describes movements in risk factors in fixed-income markets.
Fixed-income derivatives are instruments whose value derives from some bond price, interest rate, or other bond market variable. Due to their complexity, these instruments are analyzed in the next chapter. Because of their importance, mortgage-backed securities (MBSs) and other securitized products will be covered in a later chapter.
9.1 OVERVIEW OF DEBT MARKETS
Fixed-income markets are truly global. They include domestic bonds, foreign bonds, ...
