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Debt is an obligation to repay money that has been loaned. Debt obligations in the securities industry are primarily in the form of bonds, in which the investor loans money to the bond issuer and in return the issuer agrees to make regular interest payments to the investor and return the principal sum on a certain date.
A debt security, or debt investment, is a loan to a company or organization in exchange for interest payments and the return of the principal. Unlike equity securities, debt securities do not confer ownership.
Debt securities are most commonly issued by corporations, municipalities, and the United States government. However, while corporate, municipal and government bonds certainly do make up a majority of the debt securities market, there are other forms of debt security as well.
Collateralized Mortgage Obligations (CMOs) represent a large pool of mortgages - usually single-family home mortgages - that are grouped together and sold as a unit. This doesn't mean that the CMO owner owns part of the Smith's home in Arkansas, but rather that, through intermediaries, the CMO owner is in fact financing a portion of the Smith's home loan (as well as every other mortgage in the CMO).
Certificates of Deposit (CDs) are debt securities issued by banks, in which the bank borrows money for a specific period of time with the promise of higher interest rates than they offer in their savings accounts. Money market securities are typically very short-term debt securities that have very high liquidity and low interest rates designed to keep pace with inflation.
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Debt Securities - Financial Investment Basics