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Fixed Income Investing Basics

An in depth beginner guide to fixed income investing, covering bond fundamentals, yield vs price, credit ratings, government and corporate bonds, GICs, bond ETFs, and how interest rates and inflation affect returns.

Published: 2026-01-06

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This fixed income educational resource, pertaining to trading and investing, is a continual work in progress and intended for users who are interested in self-educating themselves, there are no fees or classes. For those interested in learning more about the website’s tools, the website guide will be more insightful. As a disclaimer, nothing here is financial advice, and the examples provided are incidental.

Table of Contents:

1. What is fixed income?

Fixed income securities are debt instruments that provide regular interest payments and return the principal at maturity. What this means is, a GIC (Guaranteed income contract) for example will pay you as an individual to lend your money to a bank so that they can give out loans to others. If the bank can loan the money at 6% they will happily pay you 4.5% to borrow the money from you for that loan, and then they pocket the difference. These GIC’s operate on a fixed time as well, while the rates are given for the year. So you can get a 4 month GIC at 4.5% and then receive all of your money + an additional 4.5%/3 of that money exactly 4 months later. Basically fixed income assets give you a way to loan your money and receive back a fixed amount.

2. Core bond concepts

Price:

The price is the cost of the bond, this is also the amount that you will receive interest on. They are generally set to $1000 each.

Coupon:

This is the percent rate you will receive on the bond. For example if the coupon is 5% and you buy 1 bond for $1000 you will receive $50 on that $1000 as an annual rate at the end of your term. Note this doesn’t usually compound, so a downside to long term holding is you lose the benefit of compound interest.

Yield:

Yield is the actual return of the investment, bonds are malleable in price, the yield reflects the percentage return on the current bond price. Note just because bonds are malleable in price does not mean that you won’t get your initial amount back. But if you sell early and you do not wait until maturity you will have to sell the bond at market value, which could be lower or higher than your purchase price.

Maturity:

Maturity is the date the bond ends, this is when you get paid, and also when you receive your initial investment back. Although sometimes bonds will pay on a 6 month schedule, so you will receive half of the yearly coupon rate every 6 months.

3. Types of fixed income securities

Important note on bonds: Your initial investment plus the contracted percent will be paid out upon bond maturity. Meaning, you will not receive anything until the end date of the bond you purchase. You can track bond rates on our website under the live data page.

Government bonds

Government’s hold debt, the US for example just famously passed the 38 trillion dollar marker for US debt, meaning the US is 38 trillion dollars in debt. Well this isn’t just an artificial tracker, they owe, and pay interest on, that debt. A big concern for people, and the reason things like gold can hold so much value, is that the US will eventually default on this debt (fail to pay their loan percentage) and the economy will collapse. Well the government thought of this too, and to combat it they offer bonds. Bonds are contracts stating that the US can use your money to pay down their debt, and then they will pay back what you give them plus a percentage in the future. The most common way people go about investing in this manner is short term treasury bills. These are fixed income contracts because both the percentage and time period are set upon purchase. Short term treasury bills are the general recommendation for people, as long term bonds offer risk of inflation outpacing the bond percentage, so your money is slowly depreciating. More information on these bills can be found here:

https://treasurydirect.gov/marketable-securities/treasury-bills/

For Canadians, you can generally purchase these through your broker.

Corporate bonds

Companies have debt too, and they issue bonds to pay the interest on this debt. These generally have higher yields, but as a result, they also have much higher risk. Company health and the company's credit ratings become very important. You have to be very confident the company won’t default on their debt for the entire duration or you will lose a chunk of the investment.

Municipal Bonds

Similar to government bonds, municipalities have debt and issue bonds to pay that debt. One key benefit of these bonds is they are often tax advantaged (you pay less tax on returns).

Bond funds and ETFs

These allow for diversification in bonds, and the ability to sell early. They are a collection of bonds and the ETF issuer will use your money to purchase bonds, and pay you a return. You can exit whenever as they keep a cash reserve for people to do so, similar to a bank.

GICs

GIC stands for Guaranteed Income Contract, these are generally issued by banks, they are extremely safe and offer a set percentage over a set amount of time. The price on these don’t change, you can take your money out at any time and you will receive your investment back (unless the bank, or whatever place is issuing the GIC, fails) although you won’t receive any of the interest on it unless you hold until the end date of the contract.

4. Credit ratings

Credit ratings allow for gauging risk, they go from AAA to D, although anything below BB is considered high yield junk. AAA bonds are the safest and therefore offer the lowest returns, BB and below have higher yields but are inherently riskier. The general rule of thumb is the higher yields indicate more risk.

5. Interest Rates and the Yield Curve

Interest rates are generally set by the federal reserve or bank of the country, they indicate the lending rates and therefore the yields on bonds and GICs. Interest rates directly affect bond rates in the inverse direction, when interest rates rise, bond prices fall, when interest rates fall, bond prices rise. This happens because new bonds get issued at new rates, if new better rates are available then the old bonds will fall in price, but if the new bonds have worse rates, the old ones will increase in price as they become more attractive.

The yield curve is a graph that shows bond yields against time to maturity. The x axis represents time, and the y axis represents the interest rate (yield) there are 3 main yield curve shapes, a normal yield curve where the long term bonds have a higher yield rate than short term ones, a flat yield curve where the long term and short term bonds are similar, this usually indicates uncertainty, and lastly an inverted yield curve, where the market expects slower growth and a possible recession as investors rush to long term yields for safety pushing their yields below that of short term bonds. This can be a signal but can also indicate other things like rate cuts which often boost the economy as lending rates drop so companies can afford to take on more debt, yield rates drop as a result.

6. Inflation and Real Returns

Inflation is a major concern when investing in fixed income. If inflation is high, the return on your investment in comparison to market results will likely be disappointing, markets tend to rise on inflation but fixed income is, well, fixed. It’s a good idea to consider inflation while making investment decisions around fixed income investments. This is the primary reason short term bonds generally have lower rates than long term bonds, because they are more attractive as they don’t bear the same long term inflation risks. Basically inflation is more predictable short term.

7. Additional learning resources: