What Is Fixed Income? A Guide to Bonds and Yields
Fixed income explained: what a bond is, why price and yield move inversely, what duration means, how government and corporate bonds differ, and why bond markets set the reference rate for every other asset.
Fixed income is the market for debt: instruments that pay a defined amount on a defined schedule and return the principal at maturity. It is larger than the global equity market and it sets the reference rate against which everything else is priced — which is why understanding bonds is useful even to a trader who never holds one.
> Availability at MarketsAll. Fixed Income is listed among MarketsAll's markets, but fixed income instruments are not currently listed on the MarketsAll MetaTrader 5 server. This guide is educational; it does not describe a tradeable product on the platform at present.
Key Takeaways
- A bond is a loan. The issuer pays a fixed coupon and repays the face value at maturity.
- Price and yield move inversely. This is arithmetic, not sentiment.
- Duration measures how much a bond's price moves when yields change; longer maturities move more.
- Government bond yields are the reference rate for equity valuations, mortgages and currency differentials.
What a Bond Is
| Term | Meaning |
| Face value (par) | The amount repaid at maturity — commonly 100 or 1,000 units |
| Coupon | The fixed periodic payment, expressed as a percentage of face value |
| Maturity | When the principal is repaid |
| Yield | The return based on the price actually paid, not on face value |
| Issuer | Government, agency or company |
Buy a 10-year bond with a 4% coupon at face value of $1,000 and you receive $40 a year for ten years and $1,000 at the end.
Why Price and Yield Move Inversely
The coupon is fixed. If new bonds are issued paying 5%, nobody will pay $1,000 for one paying $40 a year — the price falls until the $40, plus the gain to par at maturity, produces a competitive return. When new bonds pay 3%, the existing 4% bond becomes more attractive and its price rises.
| Market rate | Price of a 4% coupon bond | Change |
| 3% | ~$1,085 | Above par |
| 4% | $1,000 | At par |
| 5% | ~$923 | Below par |
The coupon never changed. What changed is what investors will pay for a fixed $40 a year. Every fixed income instrument inherits this mechanism, and it is the source of the relationship described in how bond yields influence global financial markets.
(Illustrative prices, rounded.)
Duration
Duration measures price sensitivity to a change in yields. Longer maturities lock in the old coupon for longer and therefore reprice harder.
| Maturity | Approximate price change if yields rise 1% |
| 2-year | −2% |
| 5-year | −4.5% |
| 10-year | −8% |
| 30-year | −17% |
This is why a "safe" government bond can produce a substantial loss: the credit risk is negligible and the interest rate risk is not.
Types of Issuer
Government bonds. US Treasuries, UK gilts, German bunds, Japanese government bonds. The lowest credit risk in each currency and therefore the reference yield for everything else in it.
Corporate bonds. Issued by companies, with credit risk. They yield more than government bonds of the same maturity, and the gap — the credit spread — widens when investors demand more compensation for risk. A widening spread is a stress signal.
Inflation-protected bonds. US TIPS and equivalents, whose principal adjusts with inflation. Their yield is a real yield, which is the number gold trades against — see gold, real yields and the US dollar.
The Yield Curve
Plotting yields against maturities gives the yield curve. Normally it slopes upward; when it inverts — short yields above long — the market is signalling that current policy rates are above what the economy can sustain. It has preceded most US recessions, with a lag long enough that it is context rather than a timing tool.
Why It Matters to Traders Who Do Not Hold Bonds
- Equity valuations are built on the government yield as the risk-free rate. When it moves, indices reprice. See why good economic news can cause markets to fall.
- Currency pairs are driven by the yield differential between two countries. See how interest rates affect currencies, stocks, gold and bonds.
- Gold trades against the real yield.
- Credit spreads are one of the clearest available stress indicators. See risk-on vs risk-off.
Watching the 10-year yield alongside an equity or currency position is one of the fastest ways to tell a rates-driven move from a sentiment-driven one.
Key Risks in Fixed Income
- Interest rate risk. The main one, measured by duration.
- Credit risk. The issuer may not pay. Negligible for major governments in their own currency; real for corporates.
- Inflation risk. A fixed coupon loses purchasing power. Inflation-protected bonds address this specifically.
- Liquidity risk. Government bonds are highly liquid; many corporate issues are not.
- Currency risk. A foreign bond adds an exchange rate exposure to the yield.
Why do bond prices fall when yields rise?
Because the coupon is fixed. When new bonds pay more, the price of an existing bond must fall until its return is competitive.
What is duration?
A measure of how much a bond's price changes when yields move. Longer maturities have higher duration and move more.
Are government bonds risk-free?
They carry minimal credit risk in their own currency. They carry substantial interest rate risk, which is a different thing.
What is a credit spread?
The extra yield a corporate bond pays over a government bond of the same maturity. A widening spread signals rising risk aversion.
Can I trade fixed income at MarketsAll?
Fixed Income is listed among the markets, but instruments are not currently listed on the MetaTrader 5 server. Check the platform for current availability.
Related Guides
What is the yield curve · How bond yields influence global financial markets · How interest rates work · Gold, real yields and the US dollar · Risk-on vs risk-off
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