Fixed Income Assets

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Mondo Visione  Aug 19  Comment 
The Australian Financial Markets Association (AFMA) has announced that Australia will move to T+2 settlement for fixed income products on March 7th, 2016. The change will reduce counterparty and systemic risk and bring Australia in line with...
Reuters  Aug 14  Comment 
The Canada Pension Plan Investment Board, one of the world's biggest dealmakers, reported a small quarterly investment loss as declines in equity and fixed income markets...
The Economic Times  Aug 11  Comment 
India’s super rich increased their exposure to stocks and cut their fixed income and real estate holdings in the last couple of years.
Finance Asia  Aug 3  Comment 
The 2015 fixed-income poll will enhance understanding of regional bond markets by tapping our audience for informed views on the best players and service providers.
Mondo Visione  Jul 9  Comment 
Liquidnet, the global institutional trading network, today announced that Chris Dennis has joined the company as Head of US Fixed Income Sales. Chris will be responsible for sales and strategy as Liquidnet builds out its high yield and investment...




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Fixed Income assets refer to assets that provide their owners with a fixed stream of income. Bonds are the most common example of a fixed income asset. Companies and government entities will issue bonds or IOUs to investors. These bonds typically pay a fixed rate of interest or coupon rate to investors for a fixed period of time, thus the name fixed income. At the end of the period, the investor receives his principal (the orginal amount of money paid for the bond).

Ratings and Risk

Fixed income assets typically receive ratings from major ratings agencies. These ratings signify the amount of risk represented by the assets. For instance a U.S. treasury bond which is considered to be one of the safest investments, carries a AAA rating, some states likewise carry high ratings. The higher the rating of the bond issuer, the lower the rate of interest required by the purchasers. A smaller, less established company, for instance, might only have a rating of BBB, and would have to pay bond investors significantly higher annual interest rates. Bonds with exceptionally low ratings are known as junk bonds and typically pay the highest interest rates--sometimes in the double digits.

Equities vs. Bonds

Equities and bonds are the two major asset classes available to investors. While there are others (real estate, private equity, and venture capital) these two classes are very common and extremely liquid (can be converted to cash easily). Equities are typically considered to be the riskier of the two asset types (with the exception junk bonds and other lowly rate bonds) and have traditionally generated higher returns than fixed income assets.

Returns

Fixed income assets historically have had a much lower rate of return than stocks (equities). This is because with


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