The term “fixed income” is used to describe a collection of securities which have predefined pay-out terms.  An example would be a certificate of deposit (CD) in which one deposits a set amount of money and in return receives a given amount of money, which includes both the original deposit plus interest income, at some future date, known as the maturity.  Fixed income securities, unlike stocks, are based on loans.  While one might think of “buying” a CD, what he/she is in fact doing is loaning the bank money, for which they are paying interest.  That interest, which is pre-determined in some fashion at the outset, is the “fixed income”.

Money Markets
Fixed income securities come in a wide array of maturities.  Those with initial maturities of one year or less trade in what is often referred to as the money market.  This term comes from the fact that these short-term instruments tend to be very liquid and often traded between banks.

Notes and Bonds
The intermediate term fixed income market is made up of securities which are generally (but not exclusively) referred to as notes.  They are instruments which have initial maturities of two to ten years.  Bonds, on the other hand, are the longer-term instruments with initial maturities of more than ten years at the time of issuance.
The standard structure of notes and bonds are the same.  They each feature a par or principle value which is paid at maturity, as well as intermediate interest payments, referred to as coupon payments, which are paid out on a predefined periodic basis (monthly, semi-annually, etc.).  The coupons represent the nominal interest on the bond or note.  For example, if a bond has a 100 par value, and a coupon of 10 per year, that means a 10% interest rate.

Callable vs. Non-Callable
Some fixed income instruments are callable.  That means the issuer can essentially buy them back from the holders prior to maturity.  Normally there are specific terms related to this such as a date after which calling is allowed, or not allowed.  When an issue is called, the holder receives the par or principal value, and sometimes a premium as well, depending on the call conditions.

Issuers
Fixed income securities are issued by a wide array of organizations.  Probably the best known and most liquid of them all are the government instruments, which are often referred to as sovereign debt because they come from national governments.  They come in a wide array of varieties and maturities from country to country, though the most commonly traded securities tend to be the notes and bonds.  They have names like Gilts (UK), Bunds (Germany), and JGBs (Japan).  Individuals can trade in government debt via the cash market through direct purchase, or they can go through the futures market.

Corporate debt is also quite well common.  A great many companies issue debt as an alternative to issuing more stock.  Many of these issues, generally notes and bonds, are listed and traded on stock exchanges.  As such, they are readily tradable by anyone with a brokerage account.

Credit Ratings

Fixed Income securities all have ratings assigned to them by one or more credit agencies.  These ratings are an indication of the creditworthiness of the issuer.  They are essentially an indication of how likely the instrument is to be paid off by the terms of its issuance.  The higher the rating the better.  For example, the sovereign debt of most major industrial countries is of the highest rating.  So too are those of many large corporations.  An issuer need not have a top level rating for it’s securities to be considered a good risk, though the yields will generally increase with lower debt ratings.

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