Chapter 1

Overview of fixed income markets

Chapter Summary

This chapter introduces debt securities and the markets in which they trade. Key players in debt markets and their objectives are described. A classification of debt securities is then provided. Various sources of risk (interest rate risk, credit risk, liquidity risk, call risk, event risk, and so on) that are present in debt securities are identified, with examples of how such risks could affect their prices and returns. Finally, the risk-return performance of the aggregate debt market is provided for a 10-year period and contrasted with other asset classes such as equity.

1.1 Overview of Debt Contracts

Debt securities are issued by borrowers to obtain liquidity (cash) or capital for either ...

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