D: Default or liquidation
Adjustments can be made within a rating category by adding a + or -. For example, AA+, AA, and AA- are all within the AA category.
Fixed-Income Security
A security, such as a note or bond, that pays a guaranteed rate of interest.
Flat
A bond that is trading without accrued interest.
Floater
A bond sold with a variable or floating interest rate that changes at intervals ranging from one day to one year.
Floating-rate Bond
A bond for which the interest rate is adjusted periodically according to a predetermined formula, usually linked to an index.
Floating-rate REMIC
A REMIC tranche which pays an adjustable rate of interest tied to a representative interest rate index such as the London Interbank Offered Rate (LIBOR), the Constant Maturity Treasury (CMT), or the Cost of Funds Index (COFI).
Floor
The lower limit for the interest rate on a floating-rate bond.
Foreign Bonds
A bond issued on the domestic capital market of another company.
Fourth Market
Trading of securities between investors who do not use the services of brokers or dealers.
Frequency
The interval of time at which the dividends are paid to the owner of the bonds. (e.g. semi-annually, quarterly)
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G
General Obligation (GO) Bonds
Municipal bonds backed by the full faith and credit (taxing and borrowing power) of the municipality issuing the bonds.
Gilt-Edged
A bond that is high grade and meets its required payments of principal and interest with no difficulty.
Ginnie Mae I
Pass-through mortgage securities on which registered holders receive separate principal and interest payments on each of their certificates. Ginnie Mae I securities are single-issuer pools.
Ginnie Mae II
Pass-through mortgage securities on which registered holders receive an aggregate principal and interest payment from a central paying agent on all of their Ginnie Mae II certificates. Ginnie Mae II securities are collateralized by multiple-issuer pools or custom pools, which contain loans from one issuer, but interest rates that may vary within one percentage point.
Global Debt Facility
The issuance platform used by most GSEs when issuing "Global" debt into the international marketplace or a particular foreign market. Has same credit characteristics as non-global debt but is more easily "cleared" through international clearing facilities.
Government Bonds
Bonds issued by governments or agencies of governments, which may include foreign as well as U.S. governments.
Government National Mortgage Association (GNMA)
Also known as "Ginnie Mae". An agency operated by the Department of Housing and Urban Development to purchase mortgages from private lenders, package them into pass-through securities and sell them to investors. The securities are backed by the U.S. government and are fully taxable.
Grantor Trust
Special-purpose vehicle set up to issue fixed-rate capital securities and use the proceeds to purchase debt of the parent company. Investors who hold interest in the trust are taxed as if they owned pro rata undivided interest in the trust's assets.
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H
Hedge
An investment made with the intention of minimizing the impact of adverse movements in interest rates or securities prices.
High-Grade Bonds
Top-rated bonds, usually triple-A, that carry relatively little risk.
High Yield Bonds
Also called "junk bonds". These bonds are usually rated lower than BBB/Baa and are considered speculative compared to investment grade bonds. The yields are also higher on these bonds than on investment grade bonds.
Hospital Revenue Bonds
Bonds issued by a municipal or state agency to finance construction maintenance or operation of hospitals or nursing homes.
Housing Bonds
Bonds issued by a municipal or state agency to finance construction of a single-family or multifamily housing.
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I
Index Ratio
For any particular date and any particular inflation-indexed security, the Reference CPI-U applicable to such date divided by the Reference CPI-U applicable to the original issue date (or dated date, when the dated date is different from the original issue date).
Industrial Bonds
Bonds issued by companies in the Industrial sector which may include manufacturers of Materials, Energy, Capital Goods, Consumer Durables and Non-Durables.
Industrial Revenue Bonds
A security issued by a state, political subdivision or certain agencies or authorities, for certain specific purposes, but backed by the credit of a private enterprise.
Inflation Indexed Securities
Notes periodically issued by the GSEs whose return is adjusted with changes in the PPI or CPI.
Inflation-adjusted Principal
For an inflation-indexed security, the principal amount of the security, derived by multiplying the par amount by the applicable index ratio.
Insured Bonds
Many municipal bonds are backed by municipal bond insurance that is specifically designed to reduce investment risk. In the event of a default, the insurance company guarantees payment of principal and interest to the investors for as long as the Default lasts. Most insured bonds carry the highest quality credit rating.
Initial Offering Price
The charge to an investor for a new bond. This is generally expressed as a percentage of face value. The bonds may not be sold at any lower price during the initial offering period.
Interchangeable Bonds
Bonds which can be converted from registered to coupon form, or vice versa, upon demand by the bearer.
Interest
Compensation paid for the use of money, usually expressed as a percentage rate.
Interest Rate
The annual percentage rate of interest paid on the inflation-adjusted principal of a specific issue of notes or bonds.
Inverse Floater
A REMIC tranche that pays an adjustable rate of interest that moves in the opposite direction from movements on a representative interest rate index such as the London Interbank Offered Rate (LIBOR), the Constant Maturity Treasury (CMT) or the Cost of Funds Index (COFI).
Investment Grade
Bonds considered appropriate by conservative investors because they represent moderate to low risk. These bonds are usually rated with the top four grades in the rating services. (e.g. Moody's, S & P, Fitch)
IO (Investment Only) Security
In the case of a REMIC, an IO tranche is created deliberately to pay investors only interest and not principal. IO securities are priced at a deep discount to the "notional" amount of principal used to calculate the amount of interest due.
Issue Date
The date on which a security is deemed to be issued or originated.
Issue Description
The description of the bond listing title of the issue, name of issuer, coupon and maturity date. To enter an issuer's name for a search, enter some of the first few letters of the issuer's name or enter the entire name.
Issuer
An entity which issues and is obligated to pay principal and interest on securities.
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J
Jumbo Pools
Ginnie Mae II pass-through mortgage securities collateralized by pools which are generally larger and contain mortgages that are often more geographically drivers than single-issuer pools. Mortgage loans in jumbo pools may vary in terms of the interest rate within one percentage point.
Jump Z-Tranche
A Z-tranche that may start receiving principal payments before prior tranches are retired if market forces create a "triggering" event, such as a drop in Treasury yields to a defined level, or a prepayment experience that differs from assumptions by a specific margin. "Sticky" jump Z-tranches maintain their changed payment priority until they are retired. "Non-sticky" jump Z-tranches maintain their priority only temporarily for as long as the triggering event is present. Although jump Z-tranches are no longer issued, some still trade in the secondary market.
Junior Security
A Security with a claim on a corporation's assets and income that is subordinate to that of a senior security. For example, common stock is junior to preferred stock, which is junior to unsecured debt such as debentures, which is junior to secured debt.
Junk Bond
A debt obligation with a rating of Ba or BB or lower, generally paying interest above the return on more highly rated bonds; sometimes know as high-yield bonds.
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L
Legal Opinion
An opinion concerning the validity of a securities issue with respect to statutory authority, constitutionality, procedural conformity and usually the exemption of interest from federal income taxes. The legal opinion is usually rendered by a law firm recognized as specializing in public borrowings, often referred to as "bond counsel."
Leverage
The use of borrowed money to increase investing power.
LIBOR
London Interbank Offered Rate. The rate banks charge each other for short-term Eurodollar loans. LIBOR is frequently used as the base for resetting rates on floating-rate securities.
Limit Order
Orders where the customer has changed price, settlement, or asked for a quantity greater than available. Dealer will treat this as a subject order. Dealer may reject the order if changes are unacceptable.
Limited Partnership
An entity formed under state legislation that enables large number of investors to become limited partners of a partnership, owning and economic interest in the entity's assets, but sharing in its liabilities only to the extent of their initial investment.
Limited Tax Bond
A bond secured by a pledge of a tax or category of taxes limited as to rate or amount.
Limited-liability Company
A special purpose company incorporated under special limited-liability company legislation enacted in many states and foreign countries. This type of entity is structured as a "pass-through" and treated like a partnership for tax purposes.
Liquidation Value
The amount a securities holder may receive in case of a liquidation of the issuer.
Liquidity
Capacity of a market to absorb a reasonable level of seeing without significant losses.
Listed
Bonds that are listed and traded over the major exchanges: NYSE, AMEX and NASDAQ.
Lockout
The period of time before a REMIC investor will begin receiving principal payments.
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M
Make Whole Call
The bond is redeemable at par plus a premium. The premium is based on the yield of the then current treasury. Example: Assume a bond has a make whole + 50 basis points call provision with the current treasury trading at 6.00%. The bond would then be callable at 6.00 + 50 basis points to equal a 6.50 % yield basis.
Market
A pricing methodology used to sell the bond at its best price available at the time the order is filled.
Mark-To-Market
The recording of the actual market values of securities.
Market Maker
A firm or person actively involved in making bids and offers in the over-the-counter market.
Market Order
An order placed to be executed at the current best available price.
Market Tone
A feeling or atmosphere regarding the trading in a market. If dealers and market makers are actively trading with narrow margins, the tone is considered good, and it is considered poor when the trading is less active and spreads are larger.
Marketability
A measure of the ease with which a security can be sold in the secondary market.
Markup
The fee charged by a dealer who purchases a security from a market maker and sells it to a customer at a higher price. The fee is included in the price of the bond and is not listed separately in the order confirmation.
Maturity Date
This is the date when the principal amount of a security becomes due and payable.
When entering search criteria, the search range can be defined by entering the least number of days (d), months (m) or years (y) to maturity in the FROM field. The greatest amount of time to the maturity should be entered in the TO field. The fields allow entry of two different time units (i.e. 30 days to 6 months could be entered as FROM: 30 d TO: 6m, etc.). The default unit of time is years (Y), so if a user entered " FROM: 3 TO: 8", bonds which mature between 3 and 8 years from today would be displayed. The mm/yy format may also be used (i.e. 5/05 to 5/10 shows bonds that mature from May 2005 through May 2010).
Maturity Date of MSB
The last possible date on which the last payment of the longest loan may be paid (also know as "stated maturity").
Medium-Term Note
A debt security issued under a program that allows an issuer to offer notes continuously to investors through an agent. The size and terms of medium-term notes may be customized to meet investors' needs. Maturities can range from one to 30 years.
Minimum Amount to Invest
The dollar amount equal to the factor adjusted amount (or current face) of the offering.
Moody's Credit Ratings
A designation given by Moody’s to indicate the relative credit quality, or the strength of the ability to pay a bond's obligation.
Moral Obligation Bond
A revenue bond which, in addition to its primary source of security, possesses a structure whereby a state pledges to make up shortfalls in a debt service reserve fund, subject to legislative appropriation. There is no legal obligation for the state to make such a payment, but market participants recognize that failure to honor the "moral" pledge would have negative consequences for the state's own creditworthiness.
Mortgage
A legal instrument that creates a lien upon real estate securing the payment of a specific debt
Mortgage-Backed Security
A bond backed by mortgages issued by the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Government National Mortgage Association. The investors receive payments from the interest and principal payments made to the mortgages.
Mortgage Banker
An entity that originates mortgage loans, sells them to investors and services the loans.
Mortgage Loan
A loan secured by a mortgage.
Mortgage Pass-through
A security representing a direct interest in a pool of mortgage loans. The pass-through issuer or servicer collect payments on the loans in the pool and "passes through" the principal and interest to the security holder on a pro rata basis.
Mortgage Pass-through Security
A bond backed by mortgages issued by the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Government National Mortgage Association. The investors receive payments from the interest and principal payments made to the mortgages.
Municipal Bonds
Fixed Income Securities issued by state and local governments or their agencies.
Mutual Fund
Also known as an open-end investment company, to differentiate it from a closed-end investment company Mutual funds invest pooled cash of many investors to meet the fund's stated investment objective. Mutual funds stand ready to sell and redeem their share at any time at the fund's current net asset value: total fund assets divided by shares outstanding.
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N
Narrowing the Spread
Also called "Closing the Market". The action taken by a dealer to reduce the difference between bids and offers.
NASDAQ
The National Association of Securities Dealers Automated Quotations. This is a computerized network by which NASD firms can communicate bids and offers for stocks and bonds traded over-the-counter. These securities are NOT listed on an exchange.
Near Money
A bond that is close to its maturity date.
Net Price
The total amount an investor pays for a bond.
Negative Convexity
A characteristic of REMICs and other callable or pre-payable securities that causes investors to have their principal returned sooner than expected in a declining interest rate environment or later than expected in a rising interest rate environment. In the former scenario, investors may have to reinvest their funds at lower rates ("call risk"); in the latter, they may miss an opportunity to earn higher rates ("extension risk").
Net Price
The total amount an investor pays for a bond.
New Issue
Securities that are publicly offered for the first time, whether in an IPO or as an additional issue of stocks or bonds by a company that is already public.
New Money
The amount of proceeds greater than the amount of the bonds being refunded.
New-Issue Market
Market for new issues of municipal bonds and notes.
Next Coupon
Date the security will pay Next Coupon.
When entering search criteria, the search range can be defined by entering the least number of days(d), months (m)or years (y) to next coupon in the FROM field. The greatest amount of time to the next coupon should be entered in the TO field. Note that if a next coupon FROM and TO date is specified in the offerings search, offerings having any coupon payment (including coupon payments beyond the next one) within the date range will be retrieved.
Non Callable
A bond that cannot be called either for redemption by or at the option of the issuer before its specified maturity date.
Notes
Short-term promises to pay specified amounts of money, secured by specified sources of future revenues, such as taxes, federal and state aid payments and bond proceeds.
Notice of Sale
The announcement of a sale of a municipal bond at competitive bidding. The announcement will include the place, date and time of the sale, the principal amount and other information about the issue.
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O
Odd Lot
A trade made for less than the normal trading unit.
Offer
The price at which a seller will sell a security.
Offer Wanted
A solicitation for a quote from an investor interested in buying a bond.
Offering Date
The first day a security is offered for sale to the public.
Offering Price
The price at which a new security is sold and the lowest price available for a round lot of securities.
Offering Scale
This is used primarily with municipal bonds. The price, expressed in eights of a point, or yield, expressed in decimals, for each maturity of serial bonds.
Official Notice of Sale
A paid announcement made by a municipality regarding an upcoming competitive bond sale.
Official Statement
The document an issuer provides detailing financial and other information about the issuer and the securities.
Option-Adjusted Spread (OAS)
For a security with an embedded option, the yield spread over a comparable Treasury security after deducting the cost of the option.
Optional Redemption
A right to retire all or part of an issue prior to the stated maturity during a specified period of years, often at a premium. The right can be exercised at the option of the issuer.
Order
A commitment made by a purchaser to buy a stated number of bonds at the offered price.
Original Face
The face value or original principal amount of a security on its issue date.
Original Issue Discount
(OID) The amount below par at which new securities are sold when first offered for sale.
Original Proceeds
The net amount received by an issuer after payment of all expenses that occurred during the issuance of the bond.
Original Issue Discount Bond
A bond issued at a dollar price less than par which qualifies for special treatment under federal tax law. Under federal tax law for tax-exempt bonds, the difference between the issue price and par value is treated as tax-exempt interest rather than capital gain.
Over-the-Counter Market
Bond trading conducted outside an exchange. Usually via telephone.
Overnight Position
The inventory a firm or trader holds at the end of the trading day.
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P
P&I (Principal & Interest)
The term used to refer to regularly scheduled payments or prepayments of principal and of interest on mortgage securities.
PAC (Planned Amortization Class) Tranche
A REMIC tranche that uses a mechanism similar to a sinking fund to determine a fixed principal payment schedule that will apply over a range of prepayment assumptions. The effect of the prepayment variability that is removed from a PAC bond is transferred to a companion tranche.
Par Value
The principal amount of a bond. This amount must be paid at maturity.
Parity Bonds
Two or more issues having the same priority of claim or lien against pledged revenues.
Parking
The process of placing assets in a safe investment for a short period of time. Parking can also be the act of selling inventory to a customer with an understanding that the customer will eventually sell it back to the firm for a previously negotiated price.
Pass Through
A pass-through is a security representing pooled debt obligations repackaged as shares. The owner of a pass-through will receive income from the issuer, which itself receives income from the pooled group of debtors.
Paying Agent
Place where principal and interest are payable. Usually a designated bank or the office of the treasurer of the issuer.
Payment Date
The date that principal and interest payments are paid to the record owner of a security.
Perpetual Floating-rate Note
A floating-rate note with no stated maturity date.
PO Security
In the case of a REMIC, a PO tranche is created deliberately to pay investors principal only and not interest. PO securities are priced at a deep discount from their face value.
Point
An abbreviation for one percentage point. For a bond, a point is $10 per $1,000 bond.
Pool
A collection of mortgage loans assembled by an originator or master servicer as the basis for a security. In the case of Ginnie Mae, Fannie Mae or Freddie Mac mortgage pass-through securities, pools are identified by a number assigned by the issuing agency.
Position
The status of an investor's securities. It can also refer to the purchasing of a block of securities.
Posted Since
Date offerings were put on the system.
Preferred Stock
Stock which provides a specific dividend that is paid before any dividends are paid to common stock holders, and which takes precedence over common stock in the event of a liquidation. Usually does not carry voting rights.
Premium
The amount over the par value for a bond.
Premium Bond
A bond with a price about the par value.
Premium Call
A provision for a bond allowing the issuer to call the bond prior to the maturity date at a price above the par value of the bond.
Prepayment
The unscheduled partial or complete payment of the principal amount outstanding on a mortgage or other debt before it is due.
Prepayment Risk
The risk that falling interest rates will lead to heavy prepayments of mortgage or other loans - forcing the investor to reinvest at lower prevailing rates.
Pre-Refund
Bonds that will be called on the stated call (pre-refunded) date. The monies used to call the bonds are on deposit in an irrevocable escrow account from the proceeds of a more recent bond issue from the same issuer. Bonds are pre-refunded in order to take advantage of the lower interest rates, thus lowering the issuer's interest expense.
Present Value
The value today of a sum of money available in the future based on a certain interest rate. This method allows investors to determine the amount of money to be invested to receive a specified amount in the future.
Price
A pricing methodology by which a bond is traded at the $ price specified. The price is specified per $100. For example, buying a bond for $95.50 represents paying $955.00 for the bond.
Primary Market
The market for New Issue securities. After bonds are traded here, they are then traded on the secondary market.
Prime Rate
The lowest interest rate charged by commercial banks to their best corporate customers.
Principal Trade
A means of compensating the broker of a bond trade solely on the basis of a mark up or spread established through purchasing a bond, holding it in inventory, and reselling the bond at market rates.
Private Label
The term used to describe a mortgage security whose issuer is an entity other than a U.S. government agency or U.S. government-sponsored enterprise. Such issuers may be subsidiaries of investment banks, financial institution or home builders.
Proceeds
The money received by a bond issuer at the close of the sell.
Protective Covenants
The agreements imposing obligations on the bond issuer to protect the bondholders. Requirements included are segregation of funds and adequate debt service coverage among others.
Provisional Rating
A temporary credit rating of an issuer by a credit rating agency. The provisional rating is revised when the agency receives the complete financial information on the issuer.
Prudent Man Rule
This is a code of conduct to guide fiduciaries in investing responsibly. The rule holds that an investor should work to preserve capital and avoid speculative investments.
PSA Standard Prepayment Model
A model based on historical mortgage prepayment rates that is used to estimate prepayment rates on mortgage securities. The PSA model is based on the Constant Prepayment Rate (CPR), or the amount of outstanding principal that is prepaid in a month. Projected and historical prepayment rates are often expressed as "percentage of PSA." A prepayment rate of 100% PSA implies annualized prepayment rates of 0.2% CPR in the first month, 0.4% CPR in the second month, 0.6% CPR in the third month, and 0.2% increases in every month thereafter until the thirtieth month, when the rate reaches 6%. From the thirtieth month until the mortgage loan reaches maturity, 100% PSA equals 6% CPR.
Public Housing Authority Bonds
Tax-exempt bonds, backed by the federal government, issued by local housing authorities to finance public housing. No new bonds of this type have been issued since 1974.
Public Offering
The sale of securities to general investors. Corporate securities are listed with the Securities and Exchange Commission. Municipal securities are usually filed with the Municipal Securities Rulemaking Board.
Public Offering Price
The aggregate value of securities in a unit investment trust fund, divided by the number of units, plus the applicable sales charge. This is the price at which units are offered for sale to the public.
Public Securities Association
A trade organization of dealers, brokers, and bankers who underwrite and trade securities offerings consisting of U.S. Treasury, federal agency, municipal, mortgage, corporate and money market issues.
Put Bond
A bond that is redeemable by the holder at his option or upon certain circumstances.
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Q
Quantity in Bonds
The number of bonds (i.e. 10 bonds = $10,000.00 face value)
Quantity in $ Face Value
The value of a bond paid back at maturity. Most bonds have a face value of $1,000; therefore $10,000.00 = 10 bonds.
Quote Wanted (QW)
Notice by a potential buyer of a security that he or she is looking for an offer by a potential seller of the security. The abbreviation OW is frequently seen in the PINK SHEETS (listing of stocks) and YELLOW SHEETS (listings of corporate bonds) published by the NATIONAL QUOTATION BUREAU for securities traded by OVER THE COUNTER dealers.
Quote Needed
Bonds that do not have prices can be bought or sold after placing a Quote Request. Once the quote is received, you can choose to buy or sell the bond.
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R
Range
A set o, , , f prices consisting of the opening price, high sale, low sale and current sale prices of the day for a given bond.
Rate of Return
The current yield or yield to maturity.
Rate Reset
The adjustment of the interest rate on a floating-rate security according to a prescribed formula.
Rating
A credit rating of a security provided by an independent rating agency.
Real Yield
For an inflation-indexed security, the yield based on the payment stream in constant dollars, i.e. before adjustment by the index ratio.
Realized Yield
The return on a bond considering purchase price and reinvestment of the coupon payments at a stated rate of interest.
Recession
A downturn in economic activity on a large scale, such as in the U.S. economy. The Commerce Department defines a recession as two or more quarters of decline in output, as measured by Gross national Product (GNP) or Gross Domestic Product (GDP).
Record Date
The date for determining the owner entitled to the next scheduled payment of principal or interest on a mortgage security.
Redemption
The retirement of securities by repaying the face value or the call price to the bondholders.
Redemption Premium
The amount by which the "call" price of a security exceeds its principal, or par value.
Refunding
The redemption of a bond issue by a new bond issue at conditions generally more variable to the issuer.
Registered Bond
A bond whose owner's name is printed on the certificate and is recorded on the books of the bond issuer. The bond may only be transferred when the bond is endorsed by the registered owner of the bond.
Registered Owner
The name in which a security is registered, as stated on the certificate or on the books of the paying agent. P & I payments are made to the registered owner on the record date.
Registrar
The party responsible for maintaining records on the behalf of a bond issuer.
Regular Way Trade
A bond sale or purchase where the delivery and payment are made on the third business day following the transaction. US Treasury bonds are considered regular way trades if the payment and delivery are made one day following the transaction.
Reinvestment Risk
The risk that interest income or principal repayments will have to be reinvested at lower rates in a declining rate environment.
REMIC
Real Estate Mortgage Investment Conduit. Because of changes in the 1986 Tax Reform Act, most CMOs are now issued in REMIC form to create certain tax advantages for the issuer. The terms REMIC and CMO are now used interchangeably.
Repurchase Agreements
Also called repos, or RPs, these are agreements between a buyer and seller of securities whereby the seller agrees to repurchase the securities at a stated price and stated time.
Residual
In a REMIC, the residual is that tranche which collects any cash-flow from the collateral that remains after obligations to the other tranches have been met.
Retail
Individual investors in securities, not institutional investors.
Revenue Bonds
Revenue bonds are issued to finance projects or enterprises in which the bond issuers pledge to the bondholders the revenues generated by the financed projects. Revenue bonds can be used to finance hospitals, water and sewage systems, tunnels, bridges, and turnpikes. Revenues can come from user fees and tolls and are used to repay the bonds.
Just a few types of revenue bonds are:
- Utility: Used to finance gas, water and sewer, and electric power systems. The bonds are usually backed by user fees.
- Health Care: Used for construction of non-profit hospitals and health care facilities. Debt is normally paid out of gross revenue.
- Transportation: Used to finance tunnels, bridges, toll roads, airports and transit systems. User fees are used to pay back debt.
Round Lot
A unit of trading or a multiple of that unit. Typically $100,000 is the measure of round lots of bonds.
Rules of Fair Practice
The regulations governing the conduct of the members of the National Association of Securities Dealers.
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S
Savings Bond
A bond issued by the Federal Government designed specifically for individual investors. The bonds come in denominations of ranging from $50 to $10,000. The interest earned on the bonds is tax exempt from both state and local income taxes.
S&P Credit Ratings
A Standard and Poor’s issue credit rating is a current opinion of the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial paper programs.) It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The issue credit rating is not a recommendation to purchase, sell, or hold a financial obligation, inasmuch as it does not comment as to market price or suitability for a particular investor.
Safekeeping
The storage and protection of customers' securities, typically held in a vault, provided as a service by a bank or institution acting as agent for the customer.
Sales Credit
An additional cost added to the price of the bond.
Scale
The coupon rates, offering prices and yields for each maturity of a serial bond.
Scenario Analysis
Examining the likely performance of an investment under a wide range of possible interest rate environments.
Secondary Market
The market in which securities are traded after they are initially offered in the primary market. Most trading occurs in the secondary market. Seasoned securities are traded in the secondary market.
Secured Debt
Debt backed by specific assets or revenues of the borrower. In the event of default, secured lenders can force the sale of such assets to meet their claims.
Secured Obligation
A debt backed by physical assets. The repayment of the interest and principal can be provided by these assets in the case of default.
Securities Act of 1933
Federal legislation designed to protect the public in the issuance and distribution of securities by requiring full disclosure of accurate information about an issue.
Securities and Exchange Commission.
(SEC)A federal agency consisting of five commissioners appointed by the President on a rotating basis for five-year terms. The chairperson is designated by the President. No more than three commissioners may be of the same political party. This agency was created in the Securities Exchange Act of 1934 to oversee the Securities Act of 1933. The SEC promotes full disclosure and fair practices by the securities market.
Security
Collateral pledged by a bond issuer (debtor) to an investor (lender) to secure repayment of the loan.
Senior Securities
Bonds and other debt obligations, fixed-rate capital securities and preferred stock that are considered senior to common stock within an entity's capitalization structure.
Sequential Pay REMIC
The most basic type of REMIC, in which all tranches receive regular interest payments, but principal payments are directed initially only to the first tranche until it is completely retired. Once the first tranche is retired, the principal payments are applied to the second tranche until it is fully retired and so on.
Serial Bond
A bond issues with stated maturity dates spread over several consecutive years.
Servicing
Collection and pooling of principal, interest, and escrow payments on mortgage loans and mortgage pools, as well as certain operational mortgage loans and mortgage pools, as well as certain operational procedures such as accounting, bookkeeping, insurance, tax records, loan payment follow-up, delinquency loan follow-up and loan analysis. The party providing the servicing receives a servicing fee.
Servicing Fee
The amount retained by the mortgage servicer from monthly interest payments made on a mortgage loan.
Settlement Date
The date on which a security bought at auction or in the secondary market is delivered in exchange for funds.
Short Position
An inventory position that reflects the sale of bonds that are not owned at the time of the sale.
Short Sale
A sale of securities not owned by the seller at the time of the transaction. This sale requires the purchase of the securities at a time in the future to cover the trade. A seller is usually expecting the price of the security to decline when a short sell is made.
Short-Term Debt
Debt with a maturity of less than one year.
Sinker
A bond with a sinking fund.
Sinking Fund
A fund where excess revenues are contributed by the issuer in order to retire the outstanding bonds in accordance with the sinking fund schedule. In the case of a Mandatory Sinking Fund(MSF), bonds WILL be called according to the schedule provided.
SMM Single Monthly Mortality
The percentage of outstanding mortgage loan principal that prepays in one month.
SMMEA
Secondary Mortgage Market Enhancement Act of 1984
SMMEA Securities
Securities that are both ultimately secured by a first-lien mortgage loan and rated in one of the top two rating categories by at least one nationally recognized statistical rating.
Special Assessment Bond
A bond secured by a special tax or other source of revenue, such as a gasoline tax.
Special Obligation Bonds
Bonds that are secured with a specific source of revenues.
Special Tax Bond
A bond secured by a special tax, such as a gasoline tax.
Sponsor
An investment firm that organizes a unit investment trust and offers the units for sale.
Spread
The difference between the bid and asked prices for a bond.
State (Municipal Bonds Only)
This is the state in which the bond was issued.
To enter the state, select from the drop-down list by clicking on the down arrow and highlight the desired state.
Stepped Coupon
A bond with a coupon rate that increases periodically, until final maturity.
STRIPS (Separate Trading of Registered Interest
and Principal of Securities)
The Treasury Department's program under which eligible securities are authorized to be separated into principal and interest components, and transferred separately. These components are maintained in book-entry accounts and transferred in TRADES (Treasury / Reserved Automated Debt Entry System).
Stripped
Yield calculation after subtracting (stripping) the accrued dividend.
Subject AMT
Bonds with interest that may be subject to the Alterative Minimum Tax (AMT) when a taxpayer has certain tax preference items or deductions. Each individual should consult with his/her tax advisor to determine potential exposure to the AMT.
Subject Offerings
Indications of offerings that are contingent on availability and / or other criteria, and must be verified before an execution of the order can take place.
Subordinated Securities
Securities with a promise to pay that cannot legally be fulfilled until payments on certain other obligation have been made.
Super PO
A principal-only security structured as a companion bond.
Superfloater
A floating-rate REMIC tranche whose rate is based on a formulaic relationship to a representative interest rate index.
Swap
The sale of a block of bonds and the purchase of another block of similar market value. Swaps may be made to establish a tax loss, upgrade credit quality, extend or shorten maturity, etc
Symbol
Bonds that are listed and traded on the major exchanges have a symbol similar to stocks. For example, an IBM bond maturing in 2007 might have a symbol such as IBM07.
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T
TAC Tranche
Targeted amortization class tranche. A TAC tranche uses a mechanism similar to a sinking fund to determine a fixed principal payment schedule based on an assumed prepayment rate. The effect of prepayment variability that is removed from the TAC tranche is transferred to a companion tranche.
Take Delivery
Accepting receipt of security certificates after the bonds have been purchased and transferred between accounts.
Taxable Bonds
The interest on these bonds is taxable on the federal level and possibly on the state level as well.
T-Bill Rate
The weekly average auction rate of the three-month Treasury bill stated as the bond equivalent yield.
Telephone
Bonds issued by companies in the Telephone sector, which may include Regional and Long Distance telecommunication service providers.
Territories
Commonwealth countries associated with the US such as Puerto Rico or unincorporated territories of the US such as Guam, who issue municipal debt.
Term Bond
A large municipal bond issue with all the bonds maturing on a single date. These bonds usually require a mandatory sinking fund.
Term Funding
A financing done to meet specific cash-flow needs for a specific period of time.
Tight Market
A condition in the secondary market with active trading and narrow spreads between asked and bid prices.
Total Bonded Debt
The total amount of debt outstanding for a state or local government regardless of the purpose of the debt.
Total Return
The return on an investment, including income from dividends and interest, as well as appreciation or depreciation in the price of the security, over a given time period, usually a year.
Trade Date
The date on which a bond transaction occurs.
Trader
A person or firm engaged in buying or selling bonds for a profit. The traders usually hold the bonds in inventory for only a short period of time.
Tranche
A class of bonds in a REMIC offering which shares the same characteristics. "Tranche" is the French word for "slice."
Transfer Agent
A party appointed by an issuer to maintain records of securities owners, to cancel and issue certificates and to address issues arising from lost, destroyed or stolen certificates.
Transportation
Bonds issued by companies in the Transportation sector, which may include Railroads, Truckers, and Air Freight.
Treasury Bills
A U.S. Government security with a maturity of one year or less. T-Bills are purchased at a discount to the full face value, and the investor receives the full value when they mature. The difference or "discount" is the interest earned. T-Bills are issued in denominations of $10,000 (auction) and $1,000 increments thereafter.
Treasury Bonds
These bonds are long-term obligations of the U.S. Treasury that mature from 10 to 30 years. Interest is paid semi-annually, and the bonds can be easily purchased in minimum denominations of $1,000 or multiples thereof.
Treasury Investment Growth Receipt (TIGR)
A Treasury bond that has been stripped of its coupons, with ownership of individual coupons, or of bond principal sold at a discount as a zero coupon. All interest is paid at maturity.
Treasury Notes
U.S. Government obligations that are available for terms of 1 to 10 years. Interest is paid twice a year, or semiannually, and the bonds can be purchased in denominations of $1,000 or multiples thereof.
Treasury STRIPS
U.S. Treasury zero coupon program standing for Separate Trading of Registered Interest and Principal of Securities. These securities are sold at a discount, and they redeem for their full face value at maturity. They are offered in amounts of $1,000 or more, and pay no interest (the interest is reinvested over the life of the security). STRIPS and zeroes are well suited to such long-term goals as college planning and retirement savings.
Trigger
The market interest rate at which the terms of a security might change. Triggers are common on index amortization notes and range securities.
Trustee
A bank designated by the issuer as the custodian of funds and official representative of bondholders.
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U
Undated Issue
A floating-rate note with no stated maturity date.
Unit
A fractional, undivided interest in a unit investment trust.
Unit Investment Trust
Investment funds created with a fixed portfolio of investments that never changes over the life of the trust. They are created by brokerage houses, and are liquidated as investments within the trust are paid off. They provide a steady, periodic flow of income to investors
Unlimited Tax Bond
A bond secured by the pledge of taxes that are not limited by rate or amount.
Upgrade
An improved credit rating issued by a rating company.
Utility Bond
Bonds issued by companies in the Utility sector, which may include Electric, Gas & Water Utility Companies.
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V
Volatility
The propensity of a security's price to rise or fall sharply.
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W
Weighted Average Coupon (WAC)
The weighted average interest rate of the underlying mortgage loans or pools that serve as collateral for a security, weighted by the size of the principal loan balances.
Weighted Average Loan Age (WALA)
The weighted average number of months since the date of the loan origination of the mortgages in a mortgage pass-through security pool issued by Freddie Mac, weighted by the size of the principal loan balances.
Weighted Average Maturity (WAM)
The weighted average number of months to the final payment of each loan backing a mortgage security, weighted by the size of the principal loan balances. Also known as weighted average remaining maturity (WARM) and weighted average remaining term (WART)
Window
In a REMIC bond, the period of time between the expected first payment of principal and the expected last payment of principal.
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Y
Yield
This is the basis on which a bond is priced and sold. It reflects the value of the bond giving consideration to the length of time to Maturity, credit quality of the Issuer/guarantor, and general market conditions.
Yield Curve
A line tracing relative yields on a type of security over a spectrum of maturities ranging from three months to 30 years.
Yield Spread
The difference in yield between two bonds or bond indices
Yield to Call (YTC)
Yield to call is computed in the same manner as yield to maturity, except the maturity date is replaced by the call date and the redemption value at maturity is replaced by the call price.
Yield to Maturity (YTM)
A yield concept designed to give an investor the average annual yield on a security. It is based on the assumption that the security is held by the investor until final maturity, and that all interest received can be reinvested at the yield to maturity.
Yield to Par Call
Yield to par call is computed in the same manner as yield to maturity, except that the maturity date is replaced by the par call date, and that the redemption value at maturity is replaced by the par call price.
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Z
Zero Coupon
A security that is issued at a deep discount and pays no annual interest. The interest is accrued and compounded semiannually at the original interest rate until the maturity date, and a payment of the full face value of the bond is then made to the holder.
Z-Tranche/ Z-Bond
Often the last tranche in a REMIC, the Z-tranche receives no cash payments for an extended period of time until the previous tranches are retired. While the other tranches are outstanding, the Z-tranche receives credit for periodic interest payments that increase its face value but are not paid out. When the other tranches are retired, the Z-tranche begins to receive cash payments that include both principal and continuing interest.