What is a Fixed Income Analysis?

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  • Written By: Justin Riche
  • Edited By: A. Joseph
  • Last Modified Date: 11 November 2019
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A fixed income analysis is the assessment of the risks and values of fixed income securities such as bonds and other financial products that provide fixed, regular payments to those who invest in them. These securities are issued by governments and all sorts of organizations in order to raise capital to help finance their projects. The purpose of a fixed income analysis is to determine which securities to buy, sell or hold in one's investment portfolio. An investor who holds or seeks to buy fixed income instruments might face many of the risks associated with these financial products, which include interest rate risk, credit risk and inflation risk. Thus, a fixed income analysis will help to point out potential risks and the rewards, and then the investor can make a decision to buy, hold or sell a particular fixed income security.

This type of analysis will help the investor evaluate a particular security and see whether the market value is fair. In other words, the investor will be able to tell whether the security is overpriced or underpriced. This is because some fixed income instruments might be priced above their fair value, which might put an investor off from buying them. On the other hand, if the fixed income analysis suggests that a particular instrument is priced below its real value, then he or she might want to buy it, because it presents a profit opportunity.


Interest rate risk and credit risk are some of the most significant risks that concern many fixed income investors. Thus, a fixed income analyst will use different methods to estimate these two particular risks and quantify how certain fixed income investments might be affected in the face of these risks. For example, rising interest rates will take away the value of most fixed income investments, but they stand to gain if the interest rates were to drop. This is because the prices of a majority of fixed income products will move in the opposite direction of interest rates — that is, when the rates rise, the prices will go down, and vice versa.

Most fixed income securities are sorts of debt obligations. That is, the buyer of the securities is the lender, whereas the issuer/seller is the borrower, and thus the buyer might face credit risk. This occurs when the issuer runs into some kind of troubles, mostly financial troubles, and he or she is unable to pay back the money owed to the lender. Therefore, while conducting a fixed income analysis, the analyst will measure the credit risk. This will help him or her to see whether the issuer will be capable of making the regular payments as well as the principal when it is due for full repayment.


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