Fixed income markets are an integral component to economic growth, providing efficient, long term and cost-effective funding. They are also one of the most heavily regulated areas of the U.S. capital markets.
Key issues currently facing the fixed income markets include:
Treasury Market Structure
Recent events highlighted longer-term structural questions in the Treasury markets, particularly the growing mismatch between the volume of Treasury issuance and the capacity of the system to intermediate the trading of those instruments.
How Treasury market liquidity can be maintained, even during periods of stress, is the subject of significant study and debate.
Rule 15c2-11
The U.S. Securities and Exchange Commission announced through a staff no-action letter in December 2021 that it would begin applying Rule 15c2-11 to the fixed income markets. The Rule, which was implemented in 1971, amended in 1975, 1991, and again in 2020, is and always has been targeted at protecting retail investors from OTC equity market fraud and has never been enforced in fixed income markets. For these reasons, it was not designed with fixed income markets in mind.
SIFMA members, including our investor members whom the Rule is nominally purported to protect, strongly believe this rule is not needed in or appropriate for fixed income markets. If the SEC proceeds with this application, they must provide the opportunity for the public to receive notice and provide comment on the proposed application, given the material policy change it represents. Failure to take these steps would threaten the continued expansion of liquidity and transparency in these markets and may increase transaction costs, harming issuers, investors, and the broader economy that is served by fixed income markets. In particular, the SEC’s action threatens the Rule 144A securities markets, which are broad and important to the many issuers who raise capital in them.
Infrastructure and Municipal Finance
There is a clear pressing need to invest in our nation’s infrastructure. Municipal bonds finance the bridges, roads, schools and hospitals our communities rely on. We have an infrastructure spending shortfall and a critical need to address it. Further, there is a difference between funding and financing efforts.
SIFMA’s priorities in this space are effective financing tools with that have been used by over 50,000 state and local governments for key infrastructure projects.
Regulation ATS
The U.S. Securities and Exchange Commission has also proposed amendments to Regulation ATS under the Securities and Exchange Act of 1934 as they relate to government securities Alternative Trading Systems (ATS). SIFMA generally supports increased operational transparency related to the basic rules of operation of fixed income and government securities ATSs. There is value in operational transparency related to the basic rules of operation of the venue, the ability of priority or preferential treatment (if any) for certain desks or clients and information on risk controls. Among other things, more operational transparency would aid investors in conducting analysis of executions.
SIFMA supports tailoring Form ATS disclosures in a manner that addresses the unique characteristics of the fixed income and other marketplaces to best serve investors.
FAQs
The fixed-income markets allow a corporation, government or other entity to borrow by selling bonds to many investors that, in aggregate, lend the amount of money the entity needs to borrow.
What is the history of fixed-income? ›
The earliest known evidence of fixed income was a bond agreement found from circa 2400 B.C. at the Nippur site in modern day Iraq. It outlined a guaranteed payment of grain by the principal, as well as guaranteed reimbursem*nt if the principal could not meet that payment.
How big is the US fixed income market? ›
YTD statistics include: Issuance (as of March) $2,452.8 billion, +8.9% Y/Y. Trading (as of March) $1,254.4 billion, +11.8% Y/Y. Outstanding (as of 4Q21) $52.9 trillion, +5.5% Y/Y.
Who are the participants in the fixed income market? ›
- ISSUERS. Governments, corporations and other entities access debt capital markets to fund their operations.
- INVESTORS. Institutional money managers include mutual funds, pension funds, hedge funds, and ETFs.
- DEALERS. Dealers or investment banks provide key underwriting and market making services.
The U.S. fixed income markets are the largest in the world, comprising 39.3% of the $138.6 trillion securities outstanding across…
Is fixed-income market bigger than stock market? ›
Fixed-income markets include not only publicly traded securities, such as commercial paper, notes, and bonds, but also non-publicly traded loans. Although they usually attract less attention than equity markets, fixed-income markets are more than three times the size of global equity markets.
Who is the father of fixed income? ›
Is fixed income conservative? ›
Fixed income as an asset class is generally less volatile than equity (stocks), and is considered to be more conservative.
Why is it called fixed income? ›
'Fixed income' is a broad asset class that includes government bonds, municipal bonds, corporate bonds, and asset-backed securities such as mortgage-backed bonds. They're called 'fixed income' because these assets provide a return in the form of fixed periodic payments.
Does fixed-income do well in recession? ›
Interest rates tend to begin to decline three months ahead of recessions and reach a cycle low about five months into recessions. During economic downturns, fixed income has been shown to provide diversification benefits and reduce the volatility of portfolios that include risk assets such as equities.
The primary market is the marketplace where corporations and governments offer their bonds to investors. New bond issues are underwritten by one or more lead managers and a syndicate of co-managers.
What does Morgan Stanley's fixed-income do? ›
Invests in a diversified portfolio of high-quality, investment-grade credit from U.S. issuers. Invests in U.S. government, corporate bonds, asset-backed and mortgage-backed securities with maturities less than five years.
Who regulates fixed income market? ›
FINRA plays an important role in regulating and providing transparency to the fixed income securities markets.
What are the disadvantages of fixed-income securities? ›
Fixed-income securities typically provide lower returns than stocks and other types of investments, making it difficult to grow wealth over time. Additionally, fixed-income investments are subject to interest rate risk.
What is the best fixed-income investment? ›
Best fixed-income investment vehicles
- Bond funds. ...
- Municipal bonds. ...
- High-yield bonds. ...
- Money market fund. ...
- Preferred stock. ...
- Corporate bonds. ...
- Certificates of deposit. ...
- Treasury securities.
Fixed income is held for the steady income stream the regular coupon payments provide. Bonds can offer diversification benefits because they often perform in the opposite direction to shares. Bond investments, therefore, help to lower the risk level within a diversified portfolio.
What are the advantages of a fixed-income market? ›
Advantage and disadvantages of fixed income
This type of investment provides regular interest payments, which can help to smooth out cash flow fluctuations. Another major advantage is that fixed-income investments are generally less volatile than stocks and other investments.
What is the difference between equity market and fixed-income market? ›
Both equity and fixed-income products are financial instruments that can help investors achieve their financial goals. Equity investments generally consist of stocks or stock funds, while fixed income securities generally consist of corporate or government bonds.
What is the role of the fixed income market? ›
Fixed Income Market Explained
Fixed income market is where fixed income investments are bought and sold. In the fixed income market, investors provide loans to government and private companies. In return, investors get 'fixed income' in the form of interest payments.
