What Is a Debt Security?

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 (the amount borrowed), interest rate, and maturity and renewal date.

Debt securities also include collateralized securities, such as collateralized debt obligations (CDOs), collateralized mortgage obligations (CMOs), mortgage-backed securities issued by the Government National Mortgage Association (GNMA), and zero-coupon securities.

Unlike equity investments, in which the return earned by the investor is dependent on the market performance of the equity issuer, debt instruments guarantee that the investor will receive repayment of their initial principal plus a predetermined stream of interest payments.

Of course, this contractual guarantee does not mean that debt securities are without risk, since the issuer of the debt security could declare bankruptcy or default on their agreements. Visit Now compare debt collection agencies to Compare Debt Collection Quotes Within Minutes.