| Participating Bond Dealers |
|
|
|
|
|
|
|
|
|
A|B|C|D|E|F|G|H|I|J|K|L|M|N|O|P|Q|R|S|T|U|V|W|X|Y|Z|
144A
Rule 144A is an exemption provision of the Securities Act in the U.S. whereby securities can be sold
through private placement to Qualified Institutional Buyers within the U.S. without SEC registration.
Accreted Value
Accreted value is the theoretical price of a bond if market interest rates were to
remain at current levels.
Accrued Interest
The amount of accumulated coupon interest that the buyer owes the seller of the
security on the settlement date. The buyer of a fixed-income security must pay
the seller of the security to compensate the seller for holding the security between
the last coupon payment date and settlement date.
Accretion
A method of adjusting a taxpayer's cost basis of a bond bought at an original
issue discount. The annual accretion is treated as interest for tax
purposes. See also Original Issue Discount, Constant Yield, and Straight-line.
Advanced Refunding
A method of eliminating a bond issue as an obligation of the issuer. This is accomplished
by issuing a new bond issue and using the proceeds to purchase government obligations
which will be escrowed and used to provide debt service on the original issue.
The escrowed funds may provide debt service until maturity of the original issue
(escrowed to maturity) or until the first call date (pre-refunded to the call).
Also known as defeasance or refunding.
Agency Bond
These securities issued by federal agencies or private entities that are government
sponsored enterprises created to help reduce the borrowing cost for important
sectors of the economy. Government sponsored enterprises are not backed by the
full faith and credit of the U.S. government, but it is perceived as supported
by the U.S. government at least to the extent that they would not the agency go
into default.
All or None (AON)
A type of bond offering where the dealer will sell only the entire amount, not
just a part. Also, a type of best efforts underwriting in which the issuer will
only sell the entire amount.
Alternative Minimum Tax (AMT)
A tax designed to prevent wealthy investors from using tax shelters to avoid other
(income) taxes. The calculation of the AMT takes into account tax preference items.
American Depository Receipts (ADR)
An ADR is a U.S. dollar denominated security (receipt) issued by a U.S. depository bank,
representing ownership to a non-U.S. company's shares, allowing U.S. investors to purchase
shares listed in other countries.
American style option
American style option may be exercised anytime before and on the option expiration date.
It is therefore priced more expensive than a european style option.
Amount Outstanding
Par amount in millions of dollars for a security still held by investors.
Annuity
A contract between an insurance company and an individual. It generally guarantees
lifetime income to the person on whose life the contract is based in return for
either a lump sum or a periodic payment to the insurance company. A fixed annuity
guarantees a specific amount of payment each month. In a variable annuity, the
amount of the monthly check would fluctuate according to the value of the securities
in the separate account.
Asset-backed Security
Structured financial products backed by assets such as student loan, credit card,
and auto load receivables.
Average Duration
The market-weighted Macaulay duration of the specified portfolio.
Average Life
A measure of how long it takes, on average, for the security to repay its principal.
Or, the average length of time that a bond issue with a mandatory sinking fund
is expected to be outstanding.
Average Yield
The market-weighted yield to maturity of a portfolio.
Back to Top
Basis
The difference between the bond's price and its delivery price.
Basis Point
Basis point (bps) is a unit of measure used for quoting yield.
Each basis point is equal to 0.01% of yield hence 100 basis points equals 1% of yield.
The basis point is commonly used to quote the difference (spread) between a bond's yield
and the underlying U.S Treasury bond yield. For example, if a bond's yield is 9.5% and the
Treasury bond's yield is 9%, then the spread is 50 basis points. Also known as bps.
Bearer
Bearer refers to ownership that is determined purely by possession of the bearer certificate.
Bearer Bond
A bond which does not have the owner's name registered on the books of the issuer. Ownership is
evidenced by physical possession of the bond certificate. Interest is paid by means of attached
coupons. Interest and principal, when due, are payable to the holder. See also Registered.
Benchmark
A benchmark is a yardstick for comparision. Usually a benchmark is the lowest credit risk
instrument such as US Treasury or sovereign paper for a specific country.
Bid and Asked
Often referred to as a quotation or quote. The bid is the highest price anyone
has declared that he wants to pay for a security at a given time and the asked
is the lowest price at which anyone is willing to sell at the same time.
Bid Wanted
A solicitation of a bid from an investor or broker/dealer on a block of bonds
to be sold.
Binomial
Binomial is a method to calculate expected total return in a "risk-neutral" world using a binomial tree.
It can also be used to find out the credit spread of a convertible bond.
Bond
A debt security that obligates the issuer to pay the holder interest during the
term of the bond, with some exceptions, and the principal at or before maturity.
Bond Anticipation Note (BAN)
A short term security issued by a municipality. Payment of the note at maturity
will be accomplished with the proceeds of a bond issue.
Bond covenant
A bond covenant is a contractual provision in the bond.
Bond Delta
Bond delta is the correlation of movement between the convertible bond price and interest rates.
Also known as rho.
Bond Equivalent Yield
The yield of a security assuming semi-annual compounding. This is used to compare
securities that have different coupon conventions such as U.S. treasury bills
and mortgage-backed securities.
Book-entry
A method of registering securities. There is no physical certificate since ownership
is solely reflected by an entry in the books of the issuer.
Broker
An agent who handles the public's orders to buy and sell securities, commodities,
or other property and charges a commission for this service.
Broker's Broker
A specialized security firm servicing municipal bond traders by acting as agent
on behelf of another security firm to provide trading anonymity..
Back to Top
Call
A call is an option contract that gives the holder the right to buy (or call) a certain
number of shares at a predetermined price for a period of time. In reference to bonds, a
call option is a security that gives the issuer the right to call back (redeem) the bond
for repayment before maturity at a predetermined price in a predetermined schedule or under
specifc conditions. Also known as call option.
Callable
A security which may be redeemed by the issuer prior to maturity.
Call Date
The next date on which the issuer can redeem the bond prior to maturity.
Call Defeasance
The legal termination of the call options of an outstanding bond issue usually due to the
advance refunding of the issue. If the call options have been legally defeased, the bonds
are no longer treated as callable.
Call Price
The price at which the issuer can redeem a bond prior to maturity usually at a
slight premium to par.
Call Protection
The period during which the issuer cannot redeem a callable security and the investor is thus protected
from call risk.
Call Provision
Call provision is a clause in a bond's indenture giving the issuer the right
to buy back all or part of an issue prior to the maturity date.
Call Risk
Call risk is the risk associated with the possibility that a callable bond will be redeemed before maturity.
Call Schedule
The schedule of call dates and call prices for a callable security.
Call Yield
Call yield is the yield that would be realized on a callable bond in the event
that the bond was redeemed by the issuer on the next available call date.
Also known as yield-to-call.
Capital Market
The segment of the securities market that deals in instrume nts with more than
one year to maturity.
Cash Yield
Cash yield refers to the yield investors can get based on current bond price regardless of investment horizon.
For example, if the coupon rate is 8% and bond price is 80%, flat yield is 10% (8% divided by 0.80).
Also known as current yield, flat yield and running yield.
CATS
An acronym for 'certificates of accrual on treasury securities'. It is a zero-coupon Treasury-derivative security
offered by Salomon Smith Barney.
Certificate of Deposit
A money market instrument which pays a fixed interest rate for the specified time period and repays the principal
at maturity. CDs are issued by banking institutions for making a deposit and can be purchased directly from the
bank or through a broker/dealer.
Clean Price
Clean price is the price of a bond or convertible bond exclusive of accrued interest. In most cases,
bonds and convertible bonds are quoted on a clean price basis. Also known as net price.
Clean Up Clause
A clean up clause states that if a high percentage of a convertible bond issue has been converted
(usually 85% or more), then the issuer may issue a call option, forcing conversion of the remaining bonds outstanding.
Clearer
Clearer refers to the custodian for settlement. In a security transaction, an investor pays money to its own account
with the clearer and the seller delivers the security to its account with the clearer. After transaction instructions
from both investor and seller are matched, the clearer will pay the seller and deliver the bond to the investor.
Clearing
Clearing refers to the process that investor pays the money and seller delivers the security.
CMO
An acronym for 'collateralized mortgage obligation'. A type of mortgage-backed security that is backed by mortgage
pools and this is documented and sold as a collection of separate bonds called tranches. CMOs may reduce the uncertainties
caused by mortgage prepayments by separating cash flows into a variety of tranches that can have different prices,
yields, expected maturities, expected prepayment speeds, etc..
Collateral
Collateral represents assets pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default.
Also known as security.
Collateral Trust Bond
A corporate bond which is secured by securities deposited as collateral by the issuing corporation.
Commercial Paper
An unsecured promissary note with a fixed maturity of 270 days or less that is issued by well-established companies
to meet short-term financing need.
Competitive Issue
A new issue brought to market by having a number of underwriting groups (syndicates) competing to win the issue.
Concession
The discount from a dealer's offering price which the dealer will give to another dealer.
Conditional Call
Any condition described in the prospectus that allows the issuer to call a bond. Some of these conditions might
include net assets reaching a certain level, common stock reaching a particular price, or loss of a type of collateral.
Conditional Put
A conditional put gives the investor the right to put ( request for repayment) if certain conditions
(covenants in the prospectus) are breached.
Confirmation
Written notice summarizing the details of a transaction.
Constant Yield Method
A method used for tax purposes to accrete the cost of a bond purchased at an original issue discount. See also
Accretion.
Contra Broker
The opposing broker in a dealer-to-dealer securities transaction.
Construction Loan Note (CLN)
Muncipal note usually issued to finance construction of multi-family housing projects. The notes are usually repaid
from the proceeds of a bond issue after the project is completed. CLNs usually have a maximum maturity of three
years.
Conversion Parity
Conversion parity is the underlying stock price at which a convertible security can become exchangeable
for shares of equal value. It is equal to conversion ratio multiplied by share price.
Conversion Price
The price stated in the indenture at which the convertible security may be converted.
Conversion Ratio
The number of shares of stock into which a convertible security may be converted. Conversion ratio equals the
par value of the convertible security divided by the conversion price.
Conversion Value
Conversion value is the value of a convertible bond if it is converted immediately. Also known as parity value.
Convertible Delta
Convertible delta refers to the sensitivity of the convertible bond price to a change in the underlying share price.
Also known as delta.
Convertible Preferred Stock
A type of preferred stock that is convertible to a given number of shares of common stock.
Convertible Security
A security that can be exchanged, at a specified price, for shares of the issuer's stock or another security.
Convexity
In mathematical terms, convexity is the second derivative of a bond's price change for given changes in yield.
Convexity is used when percentage price changes cannot be accounted for by duration. Convexity is generally used to assist in approximating large yield changes in a bond.
Corporate Bond
A taxable debt security with a specific maturity date that is issued by a U.S. corporation.
Coupon Rate
The periodic interest payment on a security paid by the issuer to the holder. Coupon is quoted as an annual percentage
of face amount.
Coupon Frequency
The number of interest payments made annually.
Credit Enhanced
Credit enhanced is a method to improve the credit of the underlying issuer usually through (1) a guarantee from a third party with higher credit quality or rating;
(2) over-collateralization; (3) a cash flow trapping mechanism; (4) off-take agreement; and/or (5) take-out agreement.
Credit Rating
The evaluation of a company by a rating agency, such as Moodys Investors Service, Standard and Poor's or Fitch,
based on its credit history and ability to repay its obligations.
Credit Spread
Credit spread means the spread (extra return) an investor can get over the benchmark
(lowest risk instrument such as US Treasury, sovereign bond, etc.) due to credit risk.
Cumulative
Cumulative means a coupon payment can be delayed and accumulated into the next period.
Current Yield
The coupon rate of a security divided by the flat market price.
CUSIP
A security identification number that is assigned by the Committee on Uniform Security Identification Procedures
of the American Bankers Association. Each security has its own unique nine-character CUSIP. Their first six characters
identify the issuer of the security. The next two characters identify the issue and the last digit is a check
digit.
Custodian
Custodian is an agent to safe keep the securtiy on behalf of an investor.
Back to Top
Dated Date
The date on which a new security begins accruing interest.
Day Count Method
The method for counting the days in a month and a year when calculating the size of an interest for a period between
two dates. The most common day-count types are Actual / Actual, Actual / 365, Actual / 360, and 30/360.
Dealer
An individual or firm in the securities business who buys and sells securities for its own account rather than
as an agent. The dealer's profit or loss is the difference between the price he pays and the price he receives
for the same security. The dealer's confirmation must disclose to his customer that he has acted as principal.
An individual or firm may function, at different times, either as broker or dealer.
Debenture
A general debt obligation backed only by the promise and credit of the borrower. Or, a debt security that obligates
the issuer to pay the holder the principal amount of the loan at or before maturity.
Deep Discount
A bond trading substancially below its face value; a term typically used in reference to zero coupon bonds. See
Discount.
Default
The failure of a debtor to make principal and/or interest payments, when due.
Defeasance
Defeasance usually occurs in connection with the advance refunding of an outstanding issue such as through
escrowing to maturity or pre-refunding. This is usually done by issuing a new series of bonds to make
provision for future payment of all obligations of the outstanding bonds through the funds generated. Legal
defeasance involves termination of some or all of the rights and interests of the bondholders and of their
options and/or their lien on the pledged security in accordance with the terms of the bond contract.
Defeased Bond
Another term for refunded bonds. Debt service is provided by escrowed government obligations and the defeased
bonds are no longer an obligation to the issuer.
Delta
Delta refers to the sensitivity of the convertible bond price to a change in the underlying share price.
Also known as convertible delta.
Depository Trust Company (DTC)
A central securities certificate depository through which members effect security deliveries between each other
via computerized bookkeeping entries thereby reducing the physical movement of certificates.
Derivative
A market instrument that is derived from an underlying security or that is created from other securities. Derivatives
include swaps, futures, and options.
Discount Bond
A bond selling below the face value amount; usually anything less than $1000 per bond.
Dollar Bond
A municipal term issue which is quoted and traded at a dollar price rather than at a yield to maturity.
Dollar Price
The price of a bond expressed as a percentage of face value. A dollar price of $95 represents 95% of face value
or $950 per $1,000 face value.
Double-barreled Bond
A municipal bond with two separate pledged sources of security. Generally the revenues of the project or special
revenues provide the initial security with secondary security provided by the general obligation taxing powers
of the issuer.
Duration
Duration is a measure of a bond's price sensitivity to changes in interest rates. It can be used to gauge the volatility of one bond compared with another and for the purpose of hedging securities. In general, it is an approximation of the bond's percentage price change for a given change in interest rates.
For example, if the duration on a bond is 4.0, the price of the bond will change by approximately 4 percent if the yield of the bond were to change by 100 basis points (or, 1 point of yield).
Duration is not an exact measure of a bond's price sensitivity to interest rate changes, but it is usually a close approximation of the interest rate changes are small. For larger changes in interest rates, the convexity of the bond must be considered (see below).
Assuming all things equal, duration increases with the maturity length of a bond. Bonds with high coupon rates generally have lower duration than bonds with low coupon rates. Zero coupon bonds always have a duration that is equal to their maturity length in years. A zero coupon bonds with 7 years to maturity has a duration of 7.0. Zero coupon bonds have a higher duration and are more volatile that fixed-coupon bonds with the same maturity.
Duration increases when a bond's yield decreases and decreases when its yield increases except on callable and puttable bonds. On callable bonds, duration decreases when yields decrease because the call feature reduces the price appreciation. On puttable bonds, duration increases as yield increases because the put feature increases the value of the bond.
There are two popular formulas for duration - modified duration and Macauley's duration.
Back to Top
Effective Redemption Date
The date on which the security is expected to be redeemed. Sometime called the workout date.
Eminent Domain
A call that allows the issuer to pay off bonds when a governmental body confiscates or otherwise takes assets of the issuer
through the exercise of eminent domain.
Equipment Trust Certificate
A type of security, generally issued by a railroad to pay for new equipment. Title to the equipment, such as a
locomotive, is held by a trustee until the notes are paid off. An equipment trust certificate is usually secured
by a first claim on the equipment.
Export-Import Bank
A federal agency which facilitates exports by providing financing.
Back to Top
Face Value
Face value is the nominal dollar amount as stated on the face of the security. For a debt security, the face value is the
amount repaid to the invetor when the bond/note matures. Also called face amount, nominal value and par value.
Federal Farm Credit System
A group of government agencies which extend credit to farmers. The system will raise money be selling 'system-wide'
debt instruments.
Fed Funds Rate
Fed funds rate is the interbank borrowing rate that banks charge each other for overnight loans.
The fed funds rate is also an important indicator of Federal Reserve monetary policy and the future direction of other interest rates.
Federal Home Loan Banks (FHLB)
They operate as a credit server system for savings-related institutions in the U.S. and are supervised by the Federal
Home Loan Bank Board.
Federal Home Loan Mortgage Corporation (FHLMC)
Freddie Mac. Provides a secondary market for conventional residential mortgages. It issues a number of mortgage-backed
securities.
Federal Housing Administration (FHA)
A federal agency that insures lenders against defaults on residential mortgages.
Federal National Mortgage Association (FNMA)
Fannie Mae. A privately owned corporation which provides a secondary market for federally guaranteed or insured
mortgages as well as conventional mortgages. It issues a number of different mortgage-related securities.
First Call Date
The earliest date specified in the prospectus supplement on which optional redemptions may take place. When no
date is specified, it is often the date on which a given condition is met, such as when a certain percentage of
original principal amount remains.
First Coupon Date
The first date after settlement on which a coupon is paid to the buyer.
Fitch Rating Service
A rating agency for certain specific type of municipal, corporate and agency bonds.
Fixed Coupon Rate
A coupon rate on a security that remains constant throughout the life of the bond.
Flat Price
Price of a bond without accrued interest. Bond traders typically quote flat price, althought purchasers pay the
full price. Bonds which are in default of interest or principal are traded flat.
Flat Yield
Flat yield refers to the yield investors can get based on current bond price regardless of investment horizon.
For example, if the coupon rate is 8% and bond price is 80%, flat yield is 10% (8% divided by 0.80).
Also known as current yield, running yield and cash yield.
Floating-rate Certificate of Deposit
Floating-rate certificate of deposit (FRCD) is a deposit certificate issued by a financial institution whose
coupon is pegged to a benchmark and adjusted regularly. An example of a FRCD is a certificate of deposit
(CD) that pays LIBOR + 100 bp and is adjusted every 3 months. In this case, the interest payment is refixed
every 3 months to the prevailing LIBOR rate plus 100 basis points.
Floating-rate Coupon
A coupon rate that varies with or floats against a standard market benchmark or index.
Floating-rate Note
A security with a floating coupon, reset periodically against a short-term index or benchmark such as the three-month
or six-month LIBOR.
Flower Bond
A low-coupon U.S. treasury securities that has a special provision allowing them to be redeemed at face value as
payment for an individual holder's U.S. federal estate taxes. It trades at a discount since it has a relatively
low interest rate (usually between 2% and 4%).
Frequency
The number of coupon installments paid annually. Municipal, corporate and agency bonds typically pay interest
semi-annually (twice a year). Zero coupon bonds, which pay no coupons, have frequencies of zero.
Funnel Bond
Also called 'tunnel', 'blanket' and 'aggregate', this is a type of sinking-fund bond in which the issuer can redeem
a specified amount of its total debt outstanding - not just a single issuer. If a funneling option is available,
the highest coupon bonds are normally targeted first for redemption.
Future Value
The value of present dollars at a future time, given as P(1 + R)T, where P is dollar amount, R is the rate, and
T is the number of compounding periods.
Full Price
The flat or quoted price plus any accrued interest. The buyer must pay the full price to the seller by the settlement
date. Also, the sum of the present value of all future cash flows at the settlement date.
Back to Top
Gamma
Gamma measures the sensitivity of the delta of a convertible bond to changes in the underlying stock price.
General Obligation Bond
A municipal bond that is backed by the full faith and credit of the issuing municipality.
Global Bond
A bond issued in two or more countries' markets, usually by the World Bank. The coupon frequency is normally semi-annual.
GNMA
Government National Mortgage Association ('Ginnie Mae'). A wholly owned U.S. government corporation within the
U.S. Department of Housing and Urban Development. GNMA packages mortgages quaranteed by the Federal Housing Authority
and Veterans Administration into mortgage pass-through securities, provides quarantees, and sells securities on
the open market.
Government Bond
A debt security issued by a government.
Gray Market
Gray market refers to the period after an issue is finalized and before it is formally issued. The security
is then traded without the certificate and will be settled after the security is issued.
Gross Spread
The difference between offering price on a security and price paid by an underwriter to the issuer.
Back to Top
Hard Call Protection
Hard call protection is the period in which the convertible bond is not callable for early redemption by the issuer
under any circumstances (except in cases of force majeure or goverment regulations).
High-grade Bond
A Bond rated triple-A or double-A by Standard & Poor's or Moody's.
Holder
The buyer or owner of a security; long.
Back to Top
Indenture
A legal document that specifically states the conditions under which a bond has been issued, the rights of the
bondholders, and the duties of the issuing corporation.
Indicative Data
The information about a security that doesn't change such as CUSIP, ticker, maturity date, and issue date.
Industrial Development Bond (IDB)
A bond issued by a municipality which is secured by a lease agreement with a corporation.
Industry
The broad market-group that best describes the nature of the issuer's business such as industrial manufacturing,
insurance, health care, etc.
Insured Bond
Many bonds are backed by insurance from a guarantees to pay the principal and interest of the bonds in case the
issuer should fail to make a payment. Most insured bonds are consider AAA rated. Some insurers include: FGIC,
MBIA, BIGI and AMBAC.
Interest Rate of Return
The percentage increase in the value of a bond over the holding period that results from interest income including
all coupon payments, any change in accrued interest between the settlement date and the horizon date, and all income
earned by reinvesting coupon payments and any proceeds from redeeming or selling the bond.
International Bond
Any bond denominated in a foreign (non-U.S.) currency but available to U.S. investors.
Inverted Yield Curve
A yield curve in which short-term rates are higher than long-term rates.
Investment Grade
A bond with an Standard and Poor's rating of BBB- or above or a Moody's rating of Baa3 or above.
Issue Date
The date on which a new security begins trading. See also dated date.
Issue Description
The unchanging indicative information about a bond including the standardized name of the issuer of the bond, coupon
rate, maturity date and CUSIP.
Issue Price
The dollar value of a security when it first comes to the market as determined by auction, consensus, or the lead
underwriter.
Issued Amount
The par or face amount of a security issued by a corporation, often stated in millions of dollars.
Issuer
An entity, such as a municipality, corporation, or government agency, that creates a bond or other security and
promises to pay holders principal and/or interest according to the schedule described in the prospectus.
Back to Top
Junk Bond
A bond with a Standard & Poor's rating of BB+ and below or a Moody's rating of Ba1 and below or an unrated
bond of questionable quality.
Back to Top
Last Coupon Date
The date on which the last coupon is paid prior to settlement. Although the issuer may pay a final coupon at settlement,
that coupon is not considered the last coupon.
Lead Manager
The leading member of the syndicate issuing a new security. The lead manager administers the marketing, allocation,
and delivery of the security. The lead manager - in consultation with the borrower - also selects co-managers;
determines the initial and final terms of the issue; selects the underwriters; and selects the selling group.
Letter of Credit
Usually issued by a commercial bank or private corporation which provides the primary or secondary security for
the bond issue.
LIBOR
The 'London Interbank Offered Rate' is the average of interbank offered rates for dollar deposits in the London
market based on quotations at five major banks.
Listed Bond
A bond which is listed and traded over one or more of the major financial exchanges.
Long Bond
A bond that matures in more than 10 years.
Long Coupon
Refers to the first interest payment (from dated date to first payment date) on a municipal bond. A long coupon
represents interest for more than six months. A short coupon represents interest for less than six months.
Back to Top
Macauley's Duration
Macauley's duration was developed in 1983 by Frederick Macauley and is defined as the weighted average term to maturity of a security's cash flows.
It takes the present value of all of the bond's cash flows and then weights them based on when they are received. The result is states as the weighted average of the life of the bond in years.
It makes a good measure for ranking different bonds in regard to their price sensitivity.
Maintenance and Insurance
The issuing body must covenant to maintain the properties in good repair and working condition at all times. Insurance must
be carried on the facility corresponding in amount and in kind to that which is normally carried under private enterprise.
Make Whole Call (Provision)
A type of call provision in a bond allowing the borrower to pay off remaining debt early. The borrower has to make a lump sum payment
derived from a formula based on the NPV of future coupon payments not paid because of the call.
'Make-Whole' is a call feature that is similar to a mandatory tender but not at a fixed price - the call price floats with the treasury market.
It is almost always beneficial to the investor or bondholder, but it still allows the issuer the option of calling the bonds in if necessary.
A make-whole call is not considered in the workout price and yield of the bond because it is so seldom exercised and rarely if every results in a lower
yield to the customer. Typically, a bond that has a make-whole call can be called at any time at the yield of the treasury to which it is benchmarked or
at a slight spread. So, if 7.5% bond is yielding 8.6% for a price of $95.86 on the open market and the issuer must call it at 6% because that is what the 5-yr
treasury yields, then the issuer must pay a 6% yield or a dollar price of $106.2 (a huge premium and capital gain for the bondholder) for these bonds.
Remember: a lower yield results in a higher price and vice versa. Even if the treasury yield has risen to a rate equal to or greater than the coupon rate, resulting in
a discount price (less than 100) at which the issuer may buy them from the bondholder, the bonds may be replaced with equal quality bonds in the marketplace at a much lower price than this.
This will probably result in a capital loss and a lower cost basis on the replacement bonds. So, either way you go, a Make-whole is beneficial for the bondholder and, still provides the issuer with some flexibility.
Market Maker
A market maker is an entity that maintains firm bid and offer prices in a given security by standing
ready to buy or sell round lots at publicly quoted prices.
Market Price
The last reported price at which the security was sold or, in the absense of an actual price, the estimated highest
price that a buyer would pay for this security or a similar security.
Market Value
The principal balance multiplied by the market price of a security.
Maturity
The date on which the unpaid principal balance of the security becomes due and payable. This date is normally
stated in the prospectus but can be affected by options such as calls, puts, sinking-funds, etc.
Maturity Yield
Maturity yield is the yield that would be realized on a bond if it were held until the maturity date.
Also known as yield-to-maturity, YTM and redemption yield.
Medium-term Note
Often abbreviated as 'MTN' this is a security issued as part of a shelf registration under the SEC's Rule 415.
The issuer develops a 'Master Official Statement' that specifies the total face amount of the issue, the coupon
payment date, and any redemption options. The issuer can then issue securities whenever it want to until the
entire registered amount is issued. MTNs have maturities of almost any length and any type of coupon. The actual
dated date, maturity and coupon is specified at the time of issuance.
Minimum Trading Size
Minimum trading size is the smallest denomination size that can be purchased or sold. Also known as trading size.
Modified Duration
A measure of the sensitivity of a bond's price to changes in yields, shown as a number of years to maturity. The
modified duration is calculated as the Macaulay duration divided by 1 plus the periodic yield. When the cash flows
from a security are not sensitive to changes in interest rates, the modified duration can be used as a measure
of the security's price sensitivity.
Moody's Investor Service
A U.S. organization that rates the quality of securities according to the credit-worthiness of their issuers.
Mortgage-backed Bond
A mortgage-backed security, backed by mortgage pools, in which interest and principal payments follow the standard
corporate bond practice of paying interest semi-annually and principal at maturity.
Mortgage-backed Security
A security, often abbreviated as 'MBS', that is backed by mortgage pools. The four basic types are: mortgage pass-through
securities, collateralized mortgage obligations, mortgage-backed bonds, and stripped mortgage-backed securities.
Mortgage Bond
A corporate security that is backed by property, not by mortgage pools.
Mortgage Pass-through Security
A mortgage-backed security, backed by residential mortgages, in which each resident's monthly mortgage payments,
plus any optional prepayments, are passed through to the investors. A servicing fee is deducted from each monthly
pass-through payment.
Mortgage Pool
Securities that are composed of groups of mortgages sharing similar characteristics and that serve as collateral
for mortgage-backed securities.
Municipal Bond
A usually federally tax-exempt debt security that is issued by a city, county or state government.
Municipal Securities Rulemaking Board (MSRB)
The self-regulatory organization of the municipal securities industry. Created in 1975, it has primary responsibility
for development of rules and regulations to govern the activities of municipal securities dealers.
Back to Top
NASD
The National Association of Securities Dealers - an association of brokers and dealers in the over-the-counter
securities business. NASD is dedicated to 'adopt, administer, and enforce rules of fair practice...' and in general
to promote just and equitable principles of trade for the protection of investors'.
Next Amount
The principal amount to be retired at the next sinking fund date.
Next Call Date
The next date on which the issuer can call the bond.
Next Sinking Date
The next scheduled date on which the issuer can or must make a sinking fund redemption.
Nominal Value
Nominal value is the nominal dollar amount as stated on the face of the security. For a debt security,
the nominal value is the amount repaid to the investor when the bond/note matures. Also known as face value or par value.
Non-callable
A security that the issuer cannot redeem before maturity, except under unanticipated or unusual circumstances as
specified in the prospectus.
Notice of Sale
The advertisement used by a municipal issuer announcing its intention to sell a new issue and inviting municipal
underwriters to enter bids for the issue.
Back to Top
Odd Lot
A block of bonds less than the established unit of trading; usually from 1 to 99 bonds.
Offer Wanted
A solicitation for a quote on a block of securities that a trader wants to buy.
Offering
A block of securities that a trader or portfolio manager wants to buy or sell at a specified price.
Official Statement
Prepared for a new municipal issue by or for the issuer. It contains complete description of the issue and financial
details about the issuer. MSRB rules require that a copy of the official statement be given to each purchaser
of a new issue, if one has been prepared.
On-the-run Treasuries
The most recently issued 3-month, 6-month, 1-year, 3-year, 5-year, 7-year, 10-year, and 30-year Treasury securities.
Tthe 7-year Treasury is considered the most current three-year-old 10-year Treasury as the U.S. government no
longer sells 7-year bonds.
Option
A contract that gives the holder the right to buy from or sell to the writer a specified amount of securities at
a specified price, good for a specified period of time.
Original Issue Discount (OID)
A new issue bond offered at a discount at a discount (below par). The bond's value must be increased (accreted)
over its life from the original discounted price up to par.
Back to Top
Participating Preferred
A preferred stock which is entitled to its stated dividend ad also to additional dividends on a specified basis
upon payment of dividends on the common stock.
Par
The face value of the bond or the value of the security as it appears on the certificate or instrument.
Par Amount
The face value of the bond multiplied by the number of bonds held, in dollars.
Payup
The cash required of the buyer to settle a trade. In a securities swap, payup is required when the securities
bought are more expensive that the securities sold.
Point
In the case of a bond, a point means $10, since a bond is quoted as a percentage of $1,000. A bond which rises
2 points gains 2 percent of $1,000, or $20 in value. An advance from 93 to 96 would mean an advance in dollar
value from $930 to $960.
Poison Put
A provision in the indenture that lets the holders redeem securities at par in the case of such designated events
as a hostile takeover, the purchase of a large block of shares, or an excessively large divident pay-out.
Preferred Stock
Preferred securities pay relatively high fixed dividents and are attractive to investors seeking income with less
risk that the stock market overall. Payments must be made to preferred security holders before dividends can be
paid to common stock owners. Payments of most preferred securities are cumulative and therefore any missed payments
must be made up before an common dividents are paid. Preferred securities are subordinate to a company's senior
debt and so payments must be made to bondholders before preferred shareholders.
Premium
A bond trading in the market above its face value. Or, the amount a bond's current price exceeds its face value.
Or, the amount a bond's redemption price exceeds its face value. Known as the 'call premium'.
Pre-sale Order
An order placed with a municipal new issue syndicate prior to the time the syndicate actually wins the issue.
This type of order is usually given the highest priority by the syndicate.
Present Value
Also called 'discounted value', this is the amount you would have to invest today to generate a particular future
value at the horizon date.
Price
The current market price of a security; the current flat price.
Primary Dealer
A dealer in government securities with whom the Federal Reserve will conduct open market operations.
Primary Market
The market for new issues or underwritings.
Prime Rate
The rate published daily by the Wall Street Journal and defined as the base rate on corporate loans posted by at
least 75 percent of the nation's 30 largest banks.
Principal Amount
The face amount of a security or the amount that the issuer must pay the holder at maturity.
Private Placement
Private placement refers to the sale of bonds, stocks, or other investments directly to an institutional investor.
Prospectus
The official selling circular that must be given to purchasers of securities registered with the Securities and
Exchange Commission. It highlights the much longer Registration Statement filed with the Commission. It warns
that the issue has not been approved (or disapproved) by the Comission and discloses such material information
as the issuer's property and business, the nature of the security offered, use of proceeds, issuer's competition
and prospects, management's experience, history, and remuneration and certified financial statements. A preliminary
version of the prospectus, used by brokers to obtain indications of interest from investors is called a 'red herring'.
This is because of a front-page notice (printed in red ink) that the preliminary prospectus is 'subject to completion
or amendment' and 'shall not constitute an offer to sell...'
Putable Security
A security that allows its holder to redeem it, before maturity, at specified intervals at a specified price.
Put Date
The next date on which the holder can redeem the security.
Put Schedule
A schedule of put dates and redemption prices for securities with put options.
Back to Top
Qualified Investor
A qualified investor is aninstitutional investor permitted under SEC rules to trade private placement securities
with other qualified institutional investors without registering the securities with SEC.
Back to Top
Redemption
Termination or partial repayment of a debt obligation with a payment by the issuer.
Redemption Date
The date when the cancellation or partial repayment of an outstanding debt occurs.
Redemption Price
The price to be paid by the issuer to redeem the security at a call date, sinking-fund date, or maturity.
Redemption Value
The price to be paid by the issuer, at maturity, to redeem the security.
Refunding
The redemption of callable securities using the proceeds from a new issue of bonds.
Refund Date
The first date on which callable securities can be redeemed using the proceeds from a new bond issue.
REIT
A 'real estate investment trust' is an investment pool established by a group of investors for the purpose of investing
in real estate or mortgages. REITs are generally exempt from federal taxes, provided that 95 percent of earned
income is distributed and that the various investors are not treated differently.
Renewal and Replacement Fund
Sometimes called a replacement reserve, is established to replace equipment or provide necessary repairs beyond normal maintenance.
Funds are paid into this account in an amount recommended by the consulting engineer and may be cumulative. Electric utility
indentures usually require that a certain percentage of gross operating revenues, a percentage of aggregate bonded endebtness,
or a percentage of the utility's property account be paid to the trustee of the maintenance and replacement fund. A major portion
of the maintenance and replacement requirement is usually satisfied with normal maintenance expenditures. The extent that there
is an additional requirement, the company may contribute cash, the pledge of unbounded property additions, or bonds. The indenture
may specify the date and price at which the bonds may be called using the monies in the maintenance and replacement fund.
Renewal and Substitution
Clauses in the bond indenture are designed to maintain the integrity of assets pledged as collateral for bonds and may allow the
bonds to be called if certain conditions are not maintained.
Reoffering
The yield at which a municipal new issue will be offered to the public. (Based on current market conditions.)
Return
The amount earned on an investment over a period of time.
Revenue Anticipation Note (RAN)
A short-term municipal security used by a municipality to help its cash flow. They have a maximum maturity of
one year and repayment is based on certain anticipated revenues of the municipality.
Revenue Bond
A bond issued to finance a project in which the bond issuers pledge to the bond holders the revenue generated by
tolls or user fees by the project being financed.
Back to Top
Security
Any document such as stocks, bonds, or notes. However, an insurance or endowment policy, credit union shares,
or fixed annuities are not considered securities.
Serial Issue
An issue which has bonds maturing each year for a set number of years.
Settlement Date
The date on which cash payments for purchases are due and for which accrued interest and price/yield relationships
are computed.
Settlement Price
The expected valuation for a security on the settlement date.
Shares Outstanding
The face amount in millions of a security that is still held by investors.
Shelf Registration
The sale of securities with various maturities and interest rates on a continuous basis, as allowed by SEC Rule
415.
Short Position
The sale of securities that the seller has borrowed. Within a fixed time period, the seller must actually buy
these securities and repay the holder.
Simple Interest
Interest calculated only on the original principal amount ignoring accrued interest.
Sinking-Fund Bond
An issue in which most or part of the issuer's long-term debt is redeemed, according to a schedule, prior to maturity.
Sinking fund bonds are often considered to be of lower risk than similar securities without sinking-fund provisions
because the issue is retired in an orderly manner before maturity.
Sinking Fund Defeasance
The legal termination of the sinking fund call options of an outstanding bond issue usually due to the advance
refunding of the issue.
Sinking-Fund Schedule
A schedule that specifies the amount sunk on particular dates.
SLMA
The Student Load Marketing Association ('Sallie Mae') is a publicly traded stock corporation that guarantees student
loans traded in the secondary market. It buys student loans from originating financial institutions and sells
them repackaged as floating-rate, short-term, and medium-term notes.
Special Assessment Bond
A bond secured by a special tax or other form of compulsory levy on the benefited property.
Special Tax Bond
A municipal bond which is secured by a pledge of a specific, special tax. It is not a general obligation since
it is limited to one specific tax.
Spread
1) In terms of yield, the spread is the difference between the security yield and the benchmark yield.
2) In terms of price, the spread is the difference between the bid and ask price.
Standard & Poor's
A U.S. organization, abbreviated 'S&P', that rates the quality of securities according to the credit-worthiness
of their issuers.
Step-Up Bond
A variable-rate security with a coupon that rises according to a predetermined fixed schedule.
Stripped Instrument
Securities in which the interest or coupons are sold separately from the principal.
Stripped Mortgage-backed Security
A mortgage-backed security in which interest cash-flows are separated from principal cash-flows. Investors can
buy interest-only (IO) bonds, principal-only (PO) bonds, or combinations that are mostly interest or mostly principal.
STRIPS
'Separate Trading of Registered Interest and Principal of Securities' are a set of zero-coupon securities backed
by the U.S. Treasury and other goverment agencies.
Subordination
Subordination is the status or ranking in claim on assets. For example, subordination debt has a junioir claim on assets
to other debts, that is, repayable only after other debts with higher claim have been satisfied.
Swap
The sale of one security to purchase another in order to change the characteristics of a portfolio such as duration,
yield, quality, call protection, and interest-rate sensitivity.
Syndicate
Syndicate is a group of investement banks that jointly underwrite and distribute a new security offering, such as a bond.
Back to Top
Takeout
The cash balance on hand as of the final settlement date. In a securities swap, takeout results when the securities
sold are more expensive that the securities purchased. See payup.
Taxable Equivalent Yield
An adjustment made to a tax-free yield for comparison to taxable yields.
Tax Anticipation Note (TAN)
A short-term municipal security used by a municipality to help its cash flow. They have a maximum maturity of
one year and repayment it based on specific future tax collections of the municipality.
Tender
The act of surrendering securities in response to an offer to buy them at a set price as in a sinking fund call
or tender offer.
Term Bond
Bonds of a new municipal issue where the entire issue has one maturity. A term issue will usually have a mandatory
sinking fund.
Ticker
Also called 'ticker symbols' these are letters that uniquely identify a security. No public standards organization
assigns tickers.
TIGR
'Treasury Investment Growth Receipts' are zero-coupon bonds introduced by Merrill Lynch in 1982 and backed by the
U.S. government. The small-denomination, zero-coupon bonds are known as 'tiger cubs'.
Trader
An individual who buys and sells for his own account for short-term profit. Also, an employee of a broker/dealer
or financial institution who specializes in handling purchases and sales of securities for the firm and /or its
clients.
Trade Date
The date on which a security buy or sell transaction actually occurs or could occur.
Treasury Bill
A zero-coupon security guaranteed by the U.S. government. Treasury bills are issued with 3 month, 6 month, and
1 year maturities in denominations of $10,000, $15,000, $100,000, and $1 million. Interest is calculated on an
actual / 360 day-count basis and quoted in discount yield terms.
Treasury Bond
A U.S. Treasury-issued security with a maturity of more than 10 years. Treasury bonds are issued in denominations
of $1,000, $5,000, $10,000, $100,000, and $1 million. Interest is calculated on an actual / 365 day-count basis
and quoted as a percentage of par to the nearest 1/32nd.
Treasury Note
A U.S. Treasury-issued security with a maturity of between 2 and 10 years. Treasury notes are issued in denominations
of $1,000, $5,000, $10,000, $100,000, and $1 million. Interest is calculated on an actual / 365 day-count basis
and quoted as a percentage of par to the nearest 1/32nd.
Triple Tax Exempt
Municipal bonds in which the bondholder pays no federal, state, or local taxes on the interest. In general, bonds
issued by possessions and territories of the U.S. (e.g. Puerto Rico) are triple tax exempt.
Back to Top
Underwriter
The individual or member of an underwriting group that has purchased this security from the issuer and is distributing
it to investors.
Unit Investment Trust
A type of investment company in which a portfolio is purchased and held with little or no change to the investments.
Commonly used with municipal bond investments.
Back to Top
Valuation
The current market-price of a security; the current flat price.
Vanilla
When referring to a bond, vanilla means the structure is very simple without any unusual features.
Variable Coupon
Variable interest rate on a debt security. For example a note with a variable coupon of LIBOR + 0.5% will pay
interest of whatever the LIBOR rate is at the time of coupon payment plus 0.5%.
Variable-rate Bond
A security with interest rates that change over time, but for which the schedule of changes is published in the
prospectus.
Volatility
The annualized standard deviation, as a percentage, of possible future riskless short-term interest rates. Indicates
the degree to which a security's price or yield is expected to rise or fall sharply within a short-term period.
Back to Top
Warrant
A warrant is a security, usually issued together with a bond or a preferred stock, that entitiles the holder
to buy a specified amount of commomn stock at a specified price for a period of years or to perpetuity.
When-issued Security
An authorized but not yet issued security that is traded conditionally in the period between the announcement date
and the auction date. New corporate-bond and Treasury-security issues are often traded on a when-issued basis.
Back to Top
Yankee Bond
A U.S. dollar-denominated security issued by a foreign entity in the U.S. domestic markets and registered with
the SEC.
Yield Curve
A graph that shows the relationship between yield and maturity for a set of securities.
Yield to Call
Yield-to-call is the yield that would be realized on a callable bond in the event that the bond was redeemed by the issuer on the next available call date. Also known as YTC.
Yield to Maturity
Yield-to-maturity is the yield that would be realized on a bond if it were held until the maturity date.
Also known as YTM, maturity yield and redemption yield.
Yield to Worst Call
The lowest yield to all possible call dates, including maturity.
Back to Top
Zero-coupon Bond
A bond that is issued without a coupon but at a deep discount. At maturity, it is redeemed at its face amount.
|
|
|
