Library/CFA (Chartered Financial Analyst)/FIXED INCOME: CFA® Program Curriculum, 2026 • Level I • Volume 6/Learning Module 3 Fixed-Income Issuance and Trading

Learning Module 3 Fixed-Income Issuance and Trading

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Market structure, issuers, and investors5 min

This chapter explains how fixed-income markets are segmented, how different issuers and investors interact across credit quality and time-to-maturity, how fixed-income indexes are constructed and used, and how primary and secondary markets differ. Fixed-income instruments are categorized by issuer type (sector), credit quality, and time to maturity; additional classifications include currency, geography, and ESG characteristics. Issuers often have many debt instruments outstanding across maturities and currencies; investors position themselves across credit and maturity spectrums to match liabilities and return objectives. Credit ratings (e.g., S&P scale from AAA to D) help determine investment-grade versus high-yield classifications and influence investor mandates.

Key Points

Instruments categorized by issuer type, credit quality, maturity, and sometimes ESG/currency.
Issuers typically have many outstanding debt issues; investors choose positions across credit and maturity to match needs.
Credit ratings separate investment-grade from high-yield; ratings influence investor eligibility and pricing.

Indexes, primary markets, and issuance mechanics5 min

Primary markets: debut issuers, private placements, public offerings, underwritten transactions, and shelf registrations are described. Underwritten investment-grade corporate offerings are often executed quickly (hours) while secured or high-yield issuance is more complex and time-consuming. Sovereign debt issuance typically uses auctions led by treasuries or finance ministries; bids can be competitive or non-competitive, and auctions can be single-price (uniform-price) or multiple-price (discriminatory). Primary dealers are designated intermediaries required to participate in sovereign auctions and support market functioning. Fixed-income indexes differ from equity indexes: they have many more constituents, greater turnover (monthly rebalancing), and constituents are usually weighted by market value of debt outstanding. Indexes can be broad/aggregate (e.g., Bloomberg Barclays Global Aggregate) or focused (e.g., J.P. Morgan EMBI+ or ESG-filtered corporate indexes). Index choice must match a fund's maturity and credit profile.

Key Points

Primary issuance methods: public offering, private placement, shelf registration, reopenings.
Sovereign auctions use competitive/non-competitive bids and single- or multiple-price methods.
Indexes have many constituents and monthly rebalancing; choose benchmark matching fund strategy.

Secondary markets, liquidity, and pricing5 min

Secondary markets for bonds are largely OTC and quote-driven; liquidity varies by on-the-run versus off-the-run issues, issuer frequency, credit quality, and trade size. Bid-offer spreads are a key liquidity metric; on-the-run sovereigns and newly issued investment-grade corporate bonds are typically the most liquid. Matrix pricing is used to estimate prices for illiquid bonds using comparable frequently traded bonds. For corporate and financial institutions, short-term funding options include uncommitted and committed bank lines, revolvers, secured loans, factoring, commercial paper, asset-backed commercial paper (ABCP), and repurchase agreements (repos). Repos are secured sales with a repurchase agreement; collateral quality, initial margin (haircut), variation margin, and repo term affect counterparty, liquidity, and market risk. Financial institutions balance low-cost secured funding versus the rollover and liquidity risk of short-term funding.

Key Points

Most secondary bond trading is OTC; liquidity varies widely; bid-offer spread is central liquidity measure.
Matrix pricing uses yields/prices of comparable, more liquid bonds to estimate illiquid bond prices.
Repos provide secured short-term funding; initial margin (haircut) and variation margin are critical risk controls.

Long-term corporate and government funding5 min

Long-term corporate debt differs across investment-grade versus high-yield issuers: IG issuers have stronger capacity to meet obligations, fewer covenants, more standardized, longer maturities, and lower issuer-specific spreads; HY issuers face covenant restrictions, shorter maturities, collateral/security, and higher proportions of yield attributable to issuer spread. Fallen angels retain IG bond features but face forced selling. Sovereign issuers are unique because of taxing authority and access to domestic/foreign markets; DM sovereigns usually enjoy highest credit quality and broad market access. Sovereigns issue short-term (T-bills), medium- and long-term notes/bonds, and sometimes guarantee other securities; auctions and debt management strategies balance short-term flexibility versus rollover/inflation/interest-rate risk. Agencies and supranational issuers borrow to fund public goods or development objectives and often have high credit quality supported by member states or sovereign guarantees.

Key Points

IG vs HY issuance differ in covenants, maturities, investor protections, and yield components.
Sovereigns have taxing power; DM sovereigns often provide default-risk-free benchmarks.
Agencies and supranationals access markets with distinct credit/support profiles.

Yield decomposition and practical considerations5 min

Yield measures and conventions matter: day-count conventions (actual/actual, 30/360), periodicity/compounding conventions, and street versus true yields affect calculations. Benchmark yields (government or on-the-run yield curves) represent macro factors; spreads over benchmarks capture issuer-specific credit, liquidity, and tax features. Index and auction mechanics, primary dealer behavior, repo market dynamics, and matrix pricing are practical tools covered in the chapter for valuation, liquidity assessment, and trade execution planning.

Key Points

Match day-count and compounding conventions when comparing yields.
Decompose yields into benchmark and spread to separate macro and issuer-specific drivers.
Understand index rules, auction mechanics and primary dealer roles for issuance planning.

Questions

Question 1

Which three dimensions are the primary ways fixed-income instruments and markets are typically categorized?

Learning Module 3 Fixed-Income Issuance and Trading

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