TASS employee in trading floor

Fixed Bonds

How fixed bonds work

Fixed rate bonds are long term debt papers that carry a predetermined interest rate. In the case of market fluctuations, a shift in the interest curve or a change in the credit standing of the issuer, the market price of the fixed bond rises or falls.

In this way it is possible for fixed bonds to produce a profit both through the predetermined interest rate (ordinary income) as well as through an increase in equity prices (extraordinary earnings).

Valuation

Fixed rate bonds are rated at the actual cash value through the expected coupon payment and the par value at which the bond is redeemable. Asset swap analysis is often used for the valuation of fixed rate bonds.

When selling fixed bonds before maturity, investors must take into account that the leverage effect of possible interest changes is especially large by long-term securities. A change in market interest rates can therefore lead to noticeable price fluctuations.