Topic: Fixed Income Securities

Federal Agency Securities

In any country, the central government can create an agency or a separate organization that issues bonds for its various departments and different purposes. The bonds so issued are not directly issued by the government, and therefore are called semi-government or...

Types of Bond Markets

Even though there is no standard classification of bond market, we can broadly classify bonds from the perspective of a country as follows: Internal Bond Market: This is the national bond market of a country. The internal bond market itself has two subcategories:...

Inflation Risk in Bonds

Almost all bonds expose an investor to inflation risk, also known as purchasing power risk. It is a risk that the increase in inflation may wipe out the profits from the bond. I’ll take a simple example to explain this. Let’s say you buy a 1-year $100 bond that pays...

Exchange Rate Risk in Bonds

Some bonds and other fixed income products also expose the investor to exchange rate risk (also known as currency risk). This happens when the investor purchases bonds that have cash flows in a foreign currency instead of his domestic currency. In such a case, when...

Liquidity Risk in Bonds

Investors in bonds also face liquidity risk. This is the risk that the investor may have to sell the bond at a price lower than the expected price. Based on the market conditions and also on a review of recent market transactions, the investor can get an idea of the...

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