Fixed-Income Issuance and Trading
Overview
Fixed-income instruments and markets are often categorized by issuer type, credit quality, time to maturity, and, sometimes, additional features, such as currency, geography, and environmental, social, and governance (ESG) characteristics. Fixed-income indexes are categorized in a similar manner and serve important functions, like the role of equity market indexes in stock markets. Like other financial markets, fixed-income markets are composed of primary markets in which issuers raise financing from investors with new issues and secondary markets where investors trade existing instruments with other investors. Given bonds’ finite maturities and other features, there are important distinctions in fixed-income markets from the primary and secondary markets for equities.
- Fixed-income instruments and markets are typically categorized along three dimensions: issuer type (i.e., sector), credit quality, and time to maturity.
- Fixed-income investors have corresponding positions along the credit and maturity spectrum as they seek exposures to certain risks and attempt to match the cash flows of known future obligations.
- Similar to equity market indexes, fixed-income indexes track the returns of groups of securities that meet their inclusion criteria. Indexes are used to evaluate market performance, benchmark the performance of investments and investment managers, and form the basis of indexed investment strategies.
- Fixed-income indexes can be classified as broad-based, aggregate indexes with a vast number of constituents or narrower indexes that focus on criteria such as issuer type, credit quality, and time to maturity.
- Primary bond markets are markets in which an issuer sells a new bond or bonds to investors to raise financing, whereas secondary bond markets are markets in which existing bonds are traded among investors.
Learning outcomes
The candidate should be able to:
- describe fixed-income market segments and their issuer and investor participants describe types of fixed-income indexes;
- compare primary and secondary fixed-income markets to equity markets.
0.75 PL Credit
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