Fixed Income Asset Classes

Fixed income

Assets and securities that pay a set level of income to investors, typically in the form of fixed interest or dividends.

Bonds

A fixed-income instrument representing a loan made by an investor to a borrower that is typically a corporate or government entity. 

Bond coupon

The annual interest rate paid on a bond expressed as a % of the face value and paid from issue date until maturity. Also referred to as Coupon rate or Nominal yield

Zero-coupon bond

An investment in debt that doesn’t pay interest. Instead it trades at a deep discount, the profit is realised at its maturity date when the bond is redeemed for its full face value. Also known as Accrual bond.

National Bond

Also known as a Sovereign Bond a debt security issued by a national government to raise money/capital for its operations: pay down old debt, pay interest on current debt and for any other government spending needs. Major source of government financing, along with tax revenue.

Unstripped non-US National Bond

Unstripped retains both the principal and interest payments together, making it a standard interest-bearing bond, and it is any national bond that is not US provided. 

Stripped National Bond

A bond that has had its main components 'stripped'/broken up into 2 separate components that are then sold individually -  a zero-coupon bond and a fixed-interest series of coupon payments. End result is essentially the same as a "normal" bond, just the return is shared among 2 investors.

US Treasury Bill

A US government debt obligations with a maturity of 1 year or less, backed by the US Department of the Treasury.

US Treasury Bond

Government debt securities issued by the US Federal government that have maturities of 20/30 years. They earn periodic interest until maturity.

US Treasury Note

A US government debt security with a fixed interest rate and a maturity period ranging from 2/3/5/7/10 years. Similar to a bond, but they have different maturities.

US Treasury Strips (we don't use these)

US bonds where the principal and coupon payments trade as separate securities, however x holders do not receive coupon payments they only receive the final payoff on the date of maturity. x can only be held through a financial institution or broker

Unstripped Government Agency

An agency bond is debt security issued by a government-sponsored enterprise or a federal government department other than the US Treasury - they are backed by the US government. They pay a slightly higher interest rate than US Treasury bonds as they are less liquid.

Stripped Government Agency

Government agency bonds where the interest payments are separated into bond principal redemption payments and zero-coupon bonds.

Supranational

A multinational union or association where member countries cede authority and sovereignty on at least some internal matters to the group, whose decisions are binding on its members. The EU, United Nations, International Monetary Fund (IMF) and the World Trade Organisation (WTO) are all example groups - a way to set international rules.

Supranational Bonds

Debt instruments issues by x organisations - these bonds play a crucial role in the global economy by providing financing for development projects, addressing social and environmental issues and fostering economic stability.

Municipal Bonds (Munis)

Debt security or obligations issued by local, county and state government entities. Thought of as loans that investors make to governments, and are used to fund public parks, libraries, bridges and roads. Interest paid on x bonds are often tax-free making them attractive investment options for individuals in high tax brackets. 

Corporate Bond

Debt securities to raise capital. When an investor buys a x bond, they are effectively lending money to the company in return for a series of interest payments. x bonds are diverse and liquid and less volatile than stocks, but provide lower returns over time. They usually have higher interest rates than government bonds, and are backed by the payment ability of the company.

Structured Securities (structured products)

Securities created by investment banks and combine two or more assets to create a product that pays out based on the performance of those underlying assets. Many are hybrid securities and have fixed maturity and may pay an interest rate or coupon rate.

Pfandbrief (Plural = Pfandbriefe)

A type of covered bonds issued by German mortgage banks that is collateralised by long-term assets. These types of bonds represent the largest segment of German private debt market and are considered to be the safest debt instruments in the private market.

These bonds can be backed by mortgages, public-sector loans, ship, or aircraft mortgages, providing diversified asset security. This market is the largest for covered bonds globally, notable for never experiencing a default in over 200 years.

Jumbo Pfandbrief

Larger, more liquid German bond with a minimum outstanding volume of EUR 1 billion. These bonds are primarily rated as triple-A and have become a model for many covered bond structures across Europe.

Asset Backed Securities (ABS)

A type of financial investment that is collateralised by an underlying pool of assets - usually income-generating assets such as loans, leases, credit card balances, or receivables. It takes the form of a bond or note, paying income at a fixed rate for a set amount of time until maturity. It provides diversification opportunities and potentially higher yields compared to traditional bonds, appealing to income-oriented investors. The securitization process allows issuers to turn illiquid assets into marketable securities, facilitating capital raising and risk management.

Asset Backed Security (ABS) Agency

Typically involves the management and administrations of x, ensuring compliance and oversight of the underlying assets.

Asset Backed Security (ABS) Private

Focuses on the private market for x, where financial institutions and investors engage directly with the underlying assets rather than through public markets.

Mortgage Backed Security (MBS)

Investments like bonds - each x is a share in of a bundle of home loans and other real estate debt bought from the banks or government entities that issued them. Investors in x receive periodic payments like bond coupon payments.

The U.S. x market remains substantial, with agency x considered less risky due to government guarantees, attracting investors seeking stable fixed-income returns.

Agency Mortgage Backed Securities (MBS)

Considered the highest credit quality due to backing by government-sponsored enterprises, while non-agency x carry higher risk and potentially higher yields.

Private Mortgage Backed Securities (MBS)

Issued by private entities, not backed by government guarantees. Higher risk due to lack of government backing, however potentially higher yields.

Collateralised Mortgage Obligation (CMO)

Refers to a type of mortgage-backed security that contains a pool of mortgages bundled together and sold as an investment and are organised by their risk profiles and maturity. x are one type of MBS.

Money Market Instrument

Involves the purchase and sale of large volumes of very short-term debt products, such as overnight reserves or commercial papers. Characterised by a high degree of safety and relatively low rates of return on investment. Money market accounts offer higher interest rates than normal savings accounts, but they have higher account minimums and limits on withdrawals.

Commercial Paper

An unsecured, short-term debt instrument issued by corporations that need to raise capital for short-term needs. It involves a specific amount of money that is to be repaid by a specific date. Only highly creditworthy companies participate in this market, so the risks remain low.

Certificate of Deposit (CD)

A type of savings account that pays a fixed interest rate on money held for an agreed-upon period of time. The best x rates are usually higher than savings accounts, but you lose withdrawal flexibility - early withdrawal penalty charges.

Banker's Acceptance (BA)

A negotiable piece of paper that functions like a post-dated check which acts as a form of payment that’s guaranteed by a bank rather than an individual account holder. It acts as a short term loan that is guaranteed by a bank and is used a lot in foreign trade to finalise transactions - e.g serves as a guarantee that an importer can pay for goods they have ordered.

Pros of Pfandbrief

Collateralised bond with an investment-grade rating that has a yield premium over sovereign bonds.