Fixed-Rate Bond

A Fixed-Rate Bond is a type of bond whose interest rate is fixed and does not fluctuate throughout its lifespan. Unlike floating bonds that have an interest rate that varies according to market rates, a Fixed-Rate Bond will have a constant interest rate that will not mirror market fluctuations. One of the benefits of Fixed-Rate Bonds is that an investor will know exactly how much interest will be earned and for how long they will be receiving interest or coupon payments. This information allows investors to make fairly accurate predictions of their returns as long as payments are made on time, until the bond matures. Fixed-Rate Bonds are issued by government agencies (treasury bonds), corporations (corporate bonds), and municipalities (municipal bonds). Despite having a stable interest rate, Fixed-Rate Bonds are risky in that individual bond rates are subject to change, sometimes at an increasing rate. New bonds are often issued at higher, more lucrative interest rates and investors who have previously purchased bonds at a lower rate will not be able to adjust to this new, better rate. For example, investors who purchased a bonds a year ago with a fixed interest rate of 6% are losing out on revenue had they purchased a 9% fixed-rate bond that are now being offered.