Fixed-Income Markets for Corporate Issuers

Previous modules described various types of fixed-income issuers and investors. In this module, we focus on the corporate fixed-income sector, composed of instruments issued by financial institutions and non-financial corporate issuers across the time-to-maturity and credit spectrums. These instruments account for a significant portion of total debt issuance and debt outstanding globally.

• Non-financial corporations frequently use short-term external funding in the form of bank loans and securities, such as commercial paper to meet cash needs.
• Financial institutions rely on deposits, interbank markets, commercial paper, and repurchase agreements (repos) as primary sources of shortterm funding.
• Commercial paper is a short-term unsecured promissory note issued by both financial institutions and non-financial corporations.
• A repurchase agreement (repo) is a form of short-term secured lending that involves the sale and simultaneous agreement to buy back a security at a pre-agreed future price.
• An investment-grade bond has a significant proportion of its yield-to-maturity (YTM) attributed to the government benchmark yield due to its strong ability to meet promised interest and principal obligations from operating cash flows.
• High-yield issuers are characterized by a higher expected likelihood of financial distress. Relative to investment-grade bonds, a higher proportion of their bonds’ YTM is attributed to an issuer-specific spread over the government benchmark yield.