Introduction

Fixed income investments have been a topic of broad interest, in particular for institutional investors such as insurance companies and pensions schemes. They were considered safe havens in turbulent times by almost all other institutional and individual investors and are used for strategies such as portfolio immunization and asset liability matching (ALM). The latest crisis, however, revealed some of the weaknesses of fixed income instruments. They proved to be not as safe as originally thought with both credit and interest rate risks emerging. Consequently, fixed income investments have been in the spotlight once more. In this chapter we will try to explain the basic notions pertaining to fixed income investments and in particular bonds. We also give an introduction of the basic investment concepts, the different asset classes, the markets, as well as the participants involved. We explain the basic characteristics of bonds and stocks, as well as their basic functions both as investment instruments and means of financing. We present the bond issuance process and the roles of the parties involved. This helps the reader understand the broader environment in which bonds are placed.