Fixed income financial instruments, also called credit content titles, grant their holder the right to receive interest payments periodically, in addition to the principal payment when the investment reaches maturity. They are one of the most important financing vehicles that are accessible to certain companies and even states themselves. They enable these entities to get money from public investors directly. They differ from shares because they don’t grant any ownership or stake in the company.
These titles constitute a debt owed by the issuer (a company or a state) the investor or holder of the title. They ensure a pre-set interest rate during an agreed period. If kept until maturity, these types of securities pose low risk.
The fixed income market is widely used on a worldwide scale to finance projects and to cover the costs of public and private investment. Thanks to the globalization of financial markets, bonds and other tools issued in other countries are easily accessible. This has further expanded the portfolio options available including various rates, deadlines, issuers and titles.
There are several types of fixed income securities. Depending on the issuer, the titles can be:
Public debt: When the guarantor is the State, for example in Colombia the Treasury issues securities (called TES, in pesos, at UVR´s - constant real value units) and they are auctioned by the Central Bank. These provide an important source of funding for the Government.
Private debt: When the issuer is a private entity, such as financial institutions and the companies of the private sector or services.
In general, these issues are quoted on secondary markets where they are controlled by supply and demand. The buyers and sellers determine the price according to changes in interest rates and the credit situation, credibility and strength of the company or state.
Certificates of deposit term (CDTs), bonds issued by the Government of Colombia or titles of Treasury (TES), debt bonds and commercial papers are the financial instruments which are most commonly negotiated in Colombian markets. Each of these titles can have a different type of interest rate.
These interest rates may be fixed, as in the case of bonds, CDTs, banking and financial acceptances, commercial papers, TES Treasury securities and real estate titles; or variable as in the case of an additional premium which is set to the value of an index such as the DTF (weekly average of the rate of uptake of certificates of deposit (CDT'S) to 90 days in the local financial system), the IBR (Banking Index of Reference), the CPI (consumer price index).
The fixed income market offers investors a wide range of terms and issuers that allow you to identify the most appropriate option in accordance with your risk profile. However, although the profitability is known from the time of purchase, the investor remains subject to the liquidity of the issuer and market risk, in the case of wanting to sell their rights on the secondary market.
In SERFINCOyou can also access international fixed income markets. This is done by means of a contract of correspondent with First American Capital Trading Corporation (FACTC). Through an account created with FACTC, you have access to issuers from different countries and economic sectors. This enables you to diversify your investment portfolio.