fixed-interest security

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A type of security that gives a fixed stated interest payment. They include gilt-edged securities, bonds, preference shares, and debentures; as they entail less risk than equities they offer less scope for capital appreciation. They do, however, often give a better yield than equities.

The prices of fixed-interest securities tend to move inversely with the general level of interest rates, reflecting changes in the value of their fixed yield relative to the market. Fixed-interest securities tend to be particularly poor investments at times of high and increasing inflation as their value does not adjust to changes in the price level. To overcome this problem some gilts now give index-linked interest payments.

Subjects: Financial Institutions and Services.

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