Debt security refers to a debt instrument, such as a government bond, corporate bond, certificate of deposit (CD), municipal bond or preferred stock, that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount borrowed), interest rate, and maturity and renewal date.
The interest rate on a debt security is largely determined by the perceived repayment ability of the borrower; higher risks of payment default almost always lead to higher interest rates to borrow capital. Also known as fixed-income securities, most debt securities are traded over-the-counter. The total dollar value of debt security trades conducted daily is much larger than that of stocks, as debt securities are held by many large institutional investors as well as governments and non-profit organizations.
