What Are Fixed Income Instruments?

Fixed income investment refers to the investment income due in advance, which is generally expressed as a percentage, paid on time, and the income remains unchanged throughout the investment period. The returns on most bonds and preferred stocks are fixed.

Fixed income investment

The characteristics of fixed income investment are fixed income, including deposit investment, bond investment and preferred stock investment. These investment returns are stable and low risk. ^[1]

There are many types of fixed-income investment instruments, such as savings deposits, commercial papers, transferable certificates of deposit, and bonds. They have the same properties and characteristics, and there are differences. Fixed income investment vehicles have similarities to floating income investment vehicles, but there are also obvious differences. Figuring out the connections and differences between the two views is extremely helpful for deepening the understanding of financial investment tools. ^[2]

There are three ways to formulate a fixed income investment strategy. The first method regards the fixed income investment strategy as basically consistent with the stock investment strategy. This is a pure asset management method called the Total Return Method. The second method takes into account the unique characteristics of bonds, that is, fixed coupons, defined maturity maturities, and maturity values, which relate cash flow to many liabilities or products of an institution. We call this method a debt financing strategy. This is a method of asset-liability management. The third method unifies and refines the first two methods. This is a surplus optimization strategy, and as discussed, it includes beta and alpha management. We call this the Uniform Law. ^[3]

There are several main parts of fixed income investment operations, including portfolio management, investment operations, and credit research: Credit research is a part of fixed income investment holdings; the following figure shows several units of fixed income investment: credit research It is the bond analysis team. ^[4]

When conducting credit research on corporate bonds, it is to study the future solvency of the issuing company. A bond researcher may be a generalist or a person who studies ten special economic sectors or industries, such as the consumer sector, industrial sector, and financial sector. , Energy department, or government department. Let's assume that you have read about bond analysis in other textbooks.

Mortgage-secured securities are also bonds, which gather a group of commercial loans or housing loans to raise funds by issuing bonds: Therefore, in terms of investment operations, it is also a fixed-income investment unit. We are discussing mortgages. When it comes to the operation of loans and real estate investments, let us discuss mortgage-backed securities.