Day Trading & Forex Forum

Additional Topics

• Mortgage-Backed Security (MBS): Instruments which are based on commercial and residential property mortgage loans.  These loans are packaged together and securitized by the likes of Fannie Mae.  The primary consideration for an MBS is that since mortgages can be prepaid, the actual maturity of the security is unknown, though it can be estimated.
• Convertible: Some bonds and notes (mostly corporate) can be exchange for another security (generally stock).  For example, a company could issue a bond which allows the holder to convert the bond in to 10 shares of company stock.  The terms of these conversions are pre-set in terms of price of the security into which the issue can be converted, and oftentimes also the timeframe in which the conversion is allowed.  The price of convertible securities are heavily influenced by the price of the security in to which they are convertible.
• Inflation Protected Securities: This is a group of fixed income securities which are tied in to inflation, as measured by the Consumer Price Index (CPI) or some other similar measure.  The interest and/or principal payments of such instruments vary based on a formula.  The idea is the nullify the influence of inflation on the holder so that the real rate of return (nominal rate minus inflation) will remain fairly steady.

Further Study

This article is but a brief introduction to fixed income.  If you wish to go further, consider the following as worthy resources.

The Handbook of Fixed Income Securities by Frank Fabozzi
This book is considered the bible among market participants and academics alike.  It is very comprehensive.

The Bond Market by Christina Ray
While not nearly as thorough as the Fabozzi book above, it is a very practical guide to the markets in application.