Fixed Income Assets

RECENT NEWS
Mondo Visione  Jan 25  Comment 
ICAP (IAP.L), a leading markets operator and provider of post trade risk mitigation and information services, announces today that Ted Bragg, Managing Director of Fixed Income Product Initiatives, will be speaking at this year’s TabbFORUM...
Wall Street Journal  Jan 14  Comment 
Morgan Stanley is shaking up its struggling fixed-income division, replacing the two co-heads of the division with the head of its stock trading desk.
newratings.com  Jan 14  Comment 
NEW YORK CITY (dpa-AFX) - Goldman Sachs Group Inc. (GS) plans to cut up to 10% of its fixed-income traders and salespeople later this quarter, the Wall Street Journal reported citing people familiar with the matter. The firm ultimately may cut...
Clusterstock  Jan 13  Comment 
Goldman Sachs is preparing to drop up to ten percent of its fixed-income division later this quarter, according to a report from The Wall Street Journal. The layoffs are expected to take place among Goldman's fixed-income traders and...
Wall Street Journal  Jan 13  Comment 
Goldman Sachs is planning to cut up to 10% of its fixed-income traders and salespeople later this quarter, a steeper-than-usual pruning of the firm’s least-productive employees.




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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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