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Bonds

T-bills (government) and bonds (corporations) are known as “fixed-income” securities because the amount of income they generate each year is “fixed” or set as a “coupon” when the T-bill or bond is issued. No matter what happens or who holds the T-bill or bond, it will generate exactly the same amount of money each year. This coupon is effectively an obligatory interest payment made by the issuer.

Bonds are issued by corporations that need to raise money. Corporate bonds will normally carry higher interest rates than T-bills or government bonds because there is a higher risk that the company could go bankrupt and default on the bond. Both government bonds and corporate bonds can be traded in the open market, and when we see CNBC or Bloomberg TV referring to the Bond Markets, this is what we mean. The 30-year bond is generally seen as the “cost of doing business”


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