Fixed Income

Fixed Income: Investment Vehicle Characteristics > Exam relevance: Fixed income questions appear throughout Section II (25% of the exam) and bleed into Section III's portfolio strategies. Understanding bond pricing, yield relationships, and duration is essential for both isolated vehicle questions and client recommendation scenarios. --- ## Why Fixed Income Matters Fixed income securities are IOUs — when an investor buys a bond, they are lending money to an issuer (government, municipality, or corporation) in exchange for periodic interest payments (coupon payments) and return of principal (face value) at maturity. The Series 65 tests your ability to compare bond types, interpret yield measures, and understand how interest rate changes affect bond values. --- ## Major Bond Categories ### U.S. Treasury Securities Issued by the federal government and considered the lowest credit risk of any bond type. Because the U.S. government can tax and print currency, these are considered essentially default-free. Types include: | Security | Maturity | Key Feature | |---|---|---| | Treasury Bills (T-Bills) | Up to 1 year | Sold at a discount; no coupon | | Treasury Notes (T-Notes) | 2–10 years | Pay semiannual coupons | | Treasury Bonds (T-Bonds) | 20–30 years | Pay semiannual coupons | | TIPS | Varies | Principal adjusts with inflation (CPI) | ### Municipal Bonds ("Munis") Issued by state and local governments. The key distinction the exam loves: - General Obligation (GO) bonds — backed by the full faith and credit (taxing power) of the issuer. Considered safer within the muni world. - Revenue bonds — backed only by income from a specific project (toll road, hospital, airport). Higher credit risk than GOs because if the project fails, bondholders…