Fixed Income CFA Level 1 Notes

Posted on

In CFA, Fixed Income is a central topic. And, it increases in importance when you advance to CFA Level 3. With many key concepts to cover, here we are going to share information regarding Fixed Income CFA Level 1 notes.

CFA Fixed Income is one of the more quantitatively intensive topics in the CFA exams and getting your fixed income basics right will build you a good base for the next levels as well. By referring to the CFA Learning Outcome Statements, we prioritize and highlight the absolute key concepts and formulas you need to learn for each topic. Also, with several topic-specific tips at the end.

Fixed Income CFA Level 1

The Fixed Income CFA Level 1 topic area is one of the biggest segments of the broader capital market. It mostly covers any investments where the investors are loaning the money for a fixed and scheduled repayment. Thus, the name ‘fixed income’.

For CFA Level 1, Fixed Income is the third largest topic after FRA and Ethics. It is important to get a solid foundation on fixed income fundamentals from Level 1 because its topic weight increases throughout the CFA level 3. The CFA Level 1 Fixed Income’s topic weighting is 10% – 12%. It means that 18 – 22 questions of the 180 questions of CFA Level 1 exam are centered on this topic. It is covered in Study Sessions 13-14 that includes Reading 39-44.

Here is the summary of CFA Level 1 Fixed Income’s chapter readings:

Reading Number




Fixed Income Securities: Defining Elements Understanding what a fixed income security is, and what its basic structure is like.
40 Fixed Income Markets: Issuance, Trading & Funding

Understanding the structure and norms of the fixed income market.


Introduction to Fixed Income Valuation Highlights the nuances of valuing and pricing fixed income securities. The most crucial chapter.
42 Introduction to Asset Backed Securities

Dives into the detail of asset-backed securities and sub-products, such as residential and commercial mortgage-backed securities.


Understanding Fixed Income Risk and Return Outlines the types of risks associated with typical fixed income securities.
44 Fundamentals of Credit Analysis

Focuses on credit risk, a type of risk particularly relevant to fixed income.

This CFA topic area proposes to introduce the readers to fixed income basics, how they are priced and valued. The concepts discussed are very crucial for those who aspire to be in Fixed Income Portfolio Management – credit, macro or otherwise.

Even for those who do not plan to reach a career in Fixed Income, these topics are going to be an inalienable part of their own skill repertoire. It is because the various markets are frequently related and great investors (e.g. Peter Lynch, Warren Buffet, and George Soros) often have knowledge of different types of markets, not only the market they are investing in.

Fixed Income CFA Level 1 will teach you about the various fixed income products that are available in the market and how these markets operate. Also, it will teach you how to price these securities; what are the risk factors to pricing a fixed income security and how to hedge any associated risks.

Reading 39: Fixed Income Securities: Defining Elements

Here, you will need to understand what a fixed income security is, and what its basic structure is like. Type of bond covenant is one of the topics you will learn.

Positive covenants are what bond issuers have to do. Several examples:

  • Create interest and principal repayments on time.
  • Comply with all laws and regulations.
  • Insure and maintain assets.

Negative covenants are what bond issues must not do. Several examples:

  • Restrictions on debt: Limits on minimum acceptable interest coverage ratios and maximum acceptable leverage ratios.
  • Negative pledges: No additional debt which is senior to existing debt can be issued.
  • Restrictions on the shareholder distributions: Restriction on how much money can be spent on dividends and share buy-backs.
  • Restrictions on mergers and acquisitions.

Fixed Income CFA Level 1 Tips

Here are Fixed Income CFA Level 1 tips:

  1. Cover the Fixed Income topic early in your studies

If you are quantitatively inclined, we highly suggest you look at this topic early in your CFA studies. But it is useful to first familiarize yourself with the concepts of Time Value of Money and the Discounted Cash flow approach. In fact, at 300Hours, there is a detailed recommended CFA Level 1 study topic order which covers all these points to maximize your study efficiency.

  1. Consider your study materials

This will depend on where you currently stand:

  • If you come with a background in Fixed Income, it will be like a simple thing.
  • If you are new to finance, particular concepts will be very alien.

For this case, we are going to recommend you using prep provider notes. You are able to see what’s on offer there. If you discover some of the concepts hard to get, just move up a notch and consult the CFA Institute curriculum that is useful for occasional deep-dives, however, may be too dry and lengthy to function well as your main study material.

If you want to get more reading material, we recommend getting Frank J Fabozzi’s Handbook of Fixed Income Securities. Based on the research, the Handbook of Fixed Income Securities has been the most trusted resource in the world for fixed income investing for decades. For your information, the Author of the Handbook of Fixed Income Securities is a professor of finance at EDHEC Business School. He is a member of the EDHEC Risk Institute and on the board of BlackRock.

  1. Master your calculator for this topic

If you want to master this section, then your CFA calculator is your best friend. Fixed Income Investments is a topic area which is mainly calculator-heavy. And the CFA exam calculations are not your regular multiplications and divisions that you are able to do using a paper and a pen. Therefore, you will need to know your calculator’s functions and operations. Please practice regularly with practice exams and given examples.

Leave a Reply

Your email address will not be published.