Bond and bonds glossary ...
... and then some basic bond-related terms.Accreted Interest - The difference between par value of a zero coupon security (i.e. bond) and purchase price. Also called original issue discount. Yearly accreted interest is the amount of accreted interest "earned" each year that you hold a zero coupon (i.e. bond) investment.
Accrued Interest - The amount of interest that the buyer owes the seller on transactions involving fixed income securities, such as most bonds and notes.
Ask (Asked Price) - The lowest round lot price at which a broker will offer for sale a security (i.e. bond) on an exchange or over-the-counter market.
Auction - The issuance of new Treasury bills, notes, and bonds at stated intervals by the Federal Reserve.
Auction Market - A market where buyers and sellers enter simultaneous bids and offers such as the New York Stock Exchange.
Average - Also known as an index, a mathematical computation that indicates the value of a number of securities as a group. The three most popular averages are the Dow Jones Industrial Average (DJI), Standard & Poor’s (S&P) 500, and the New York Stock Exchange Composite. The average, which may be market-weighted, share-weighted, or price-weighted, indicates performance.
Average Life - The estimate of maturity for a pool of mortgage-backed securities.
Baby Bond - Bond with a face value of less than $1,000.
Basis Points - A relationship between a bond’s price and a yield subdivided into hundredths. One hundred basis points equals 1 percent interest yield.
Basis Price - A method of pricing municipal bonds, T bills, and certain other instruments. It is an expression of yield to maturity.
Bearer Stocks/Shares - Securities for which no register of ownership is kept by the company. A bearer certificate has an intrinsic value. Dividends are not received automatically from the company but must be claimed by removing and returning "coupons" attached to the certificate.
Beneficial Owner - The owner of a security (i.e. bond) who is entitled to all the benefits associated with ownership. Customers’ securities (bonds) are often registered in the name of the brokerage firm or central depository rather than in the name of the customer. Even so, the customer remains the real or beneficial owner.
Bid - The highest price anyone has declared that they want to pay for a security (i.e. bond) at a given time.
Bond - A debt instrument; a security that represents the debt of a corporation, a municipality of the federal government, or any other entity. A bond is usually long-term in nature (10 to 30 years).
Bond Fund - Type of mutual fund that invests in bond and preferred stocks with the idea of providing a stable income with a minimum of risk.
Callable - A securities feature that allows the issuer to retire the issue when desired. Should the issue be called, the issuer usually pays a premium.
Callable Bonds - Treasury bonds (US bonds) that can be redeemed five years before maturity.
Capital Stock - The common and preferred stock of a company.
Capitalization - The total dollar value of all common stock, preferred stock, and bonds issued by a corporation.
Certificate - The physical document evidencing ownership (a share of stock) or debt (a bond).
Cliffing - A strategy for arranging bonds so that they all mature in the same year.
Close - Price of the last transaction of a security (i.e. bond) on a particular trading day.
Closing Transaction - The transaction executed to close an option contract. The holder would sell to close while the writer would buy to close.
Collateral Trust Bond - A debt instrument issued by one corporation and backed by the securities of another corporation.
Consent to Loan Agreement - An agreement margin customers must sign to authorize the brokerage firm to lend the customer’s securities to itself or other firms.
Constant-Dollar Investment - Securities such as savings accounts and money market funds that do not fluctuate in price.
Contractual Plan - A type of accumulation plan in which an investor in mutual funds makes a firm commitment to invest a given amount of money over a given time.
Convertible Issue (Bond) - A securities feature that permits the issue holder to convert to another issue, usually common stock. This privilege can be used only once. The preferred stock or bond holder can convert from that issue to another, but not back.
Coupon - (1) On Bearer Stocks, the detachable part of the certificate exchangeable for dividends. (2) Denotes the rate of interest on a fixed interest security - a 10% coupon pays interest of 10% a year on the nominal value of the stock.
Coupon Yield - Also called nominal yield. A bond’s coupon payment divided by par value.
Current Maturity - The number of years until a bond matures, regardless of its original maturity when issued.
Current Yield - A bond’s coupon payment divided by its market price.
Dated Date - The first day that interest starts to accrue on newly issued bonds.
Debenture Bond - A debt that is issued by a corporation and that is backed or secured by the good name of the issuing company.
Deed of Trust - The trust agreement drawn up when a corporation plans to issue bonds or other debt securities. It includes such items as assets, interest payments, maturity dates, etc. Also, see indenture.
Default - An issuer’s failure to pay accreted interest when a zero coupon issue matures. Treasury securities are considered default-free.
Deferred Annuity - An annuity plan in which payments are to be made at some set date in the future.
Derivative Zeros - Zero coupon bonds created by stripping coupon and principal payments from a U.S. Treasury Security.
Discount - When the market price of a newly issued security (i.e. bond) is lower than the issue price.
Dollar Cost Averaging - An investment method used in mutual funds by which clients invest the same dollar amount periodically. Because mutual funds permit the buying of fractional shares, all of the investor’s payment is used in the acquisition of fund shares.
Dollar-Denominated - Foreign securities (bonds) that pay interest and principal in U.S. dollars.
Duration (generic) - The attempt to determine the true maturity, as opposed to final maturity, of a security, by measuring the average time required to collect all payments of principal and interest.
EE Savings Bond - A zero coupon bond issued directly by the Treasury in par values ranging from $5 to $10,000. Purchased at half of par, EE savings bonds mature in 12 years and are eligible for extended maturity.
Effective Date - The first date after the cooling-off period of a new issue that the security (i.e. bond) can be offered.
Equipment Trust Bonds - Debt instruments that are issued by some corporations that are backed by "rolling stock" (such as airplanes or locomotives and freight cars).
Eurobonds - A long-term loan issued in a currency other than that of the country or market in which it is issued. Interest is paid without the deduction of tax.
Extended Maturity - A provision whereby a bond continues to pay interest beyond its stated maturity. Face Value - The debt (or loan) amount that appears on the face of the certificate and that the issuer must pay at maturity.
Factor - A decimal between 0 and 1 that represents the amount of mortgages remaining in a pool of mortgage-backed securities (bonds).
Factor Book - A tabular presentation that shows relevant information about factors, value of remaining mortgages, and interest rates on mortgage-backed securities.
Fixed Annuity - Insurance company guarantees dollar amount of payments to the annuitant for the period covered under the contract.
Flat - A bond trading without accrued interest is said to be trading "flat."
Flower Bond - A specially identified series of Treasury bonds accepted at full par in payment of estate taxes.
General Obligation (GO) Bond - A municipal bond whose issuer's ability to pay back principal and interest is based on its full taxing power.
Government Bond - Debt security issued by the U.S. Government. Good example is Croatian government bonds.
HH Savings Bonds - A savings bond that pays semiannual coupon interest, unlike EE savings bonds.
Income Bonds - Bonds issued when the ability of the issuing company to pay interest is questioned. They are speculative instruments that pay high rates of interest.
Income Stream - A strategy of arranging bonds so that they produce a consistent series of payments.
Indenture - The terms of a corporate bond. Also known as deed of trust, it appears on the face of the bond certificate.
Industrial Revenue (ID Revenue, ID Revs, or Industrial Rev) Bond - A form of municipal bond whose issuer's ability to pay interest and principal is based on revenue earned from an industrial complex.
Interest Rate Risk - The prospect that Treasury and agency securities (bonds) will decline in price if economy-wide interest rates rise.
Intermediate-Term Bonds - Those maturing five to ten years after original issue.
Issue - (1) The process by which a new security is brought to market. (2) Any security.
Issue Date - Month and day that a security is initially issued.
Issued Stock - Stock sold to the public.
Letter of Renunciation - This applies to a rights issue and is the form attached to an Allotment Letter which is completed should the original holder wish to pass his entitlement to someone else or to renounce his rights absolutely.
Liability - Any claim against the corporation, including accounts payable, salaries payable, and bonds.
Limited Tax Bond - A municipal bond whose ability to pay back principal and interest is based on special tax.
Loan Stock - Stock bearing a fixed rate of interest. Unlike a Debenture, loan stocks may be unsecured.
Long-Term Bonds - Bonds that mature in more than ten years.
Mortgage-Backed Securities - A collection of mortgages bundled into a single security and retailed to private or institutional investors as a single security.
Mortgage Bond - A debt instrument issued by a corporation and secured by real estate owned by the corporation (such as factories or office buildings). Here is a little bit more info on mortgage bonds.
Municipal Bond - A long-term debt instrument issued by a state or local government. It usually carries a fixed rate of interest, which is paid semiannually.
Municipal Note - A short-term debt instrument of a state or local government. Most popular are revenue, bond, and tax anticipation notes.
Negotiable - A feature of a security that enables the owner to transfer ownership or title. A non-negotiable instrument has no value.
Nominal Yield - The interest rate stated on the face of the bond.
Nominee Name - Name in which a security is registered and held in trust on behalf of the beneficial owner.
Noncallable - A note or bond that cannot be called prior to maturity. Many Treasury and most agency securities are noncallable.
Noncompetitive Tender - A method of purchasing Treasury bills, notes, and bonds directly from the Federal Reserve at the average price during an auction of new securities.
Note - The general name for a Treasury or agency security with an initial maturity of fewer than 10 years.
Odd Lot - A quantity of securities that is smaller than the standard unit of trading, which is usually 100 shares.
Offer - The price at which the market maker will sell shares to investors.
Original Issue Zeros - Zero-coupon securities originally issued by a corporation, government, or governmental subdivision as zeros. A zero-coupon security not created by severing interest and principal payments from a preexisting bond.
Par - Face value; the nominal value of a security (i.e. bond).
Phantom Interest - The yearly accreted interest that a zero-coupon security (i.e. bond) is presumed to pay each year you hold it even though payment of interest isn’t made until the zero matures.
Premium Bond - A note or bond selling at a price above par.
Prospectus - A document that explains the terms of a new security offering. Must be given to any customer who purchases new corporate and certain municipal bonds issues.
Public Market - The listed exchanges through which zero-coupon investments (bonds) can be purchased and sold.
Public Offering Date - The first day the new issue is offered to the public, on or shortly after the effective date.
Quotation - The current bid price and the current ask price of a security.
Quote - The highest bid and lowest offer on a given security at a particular time.
Rating - The alphabetical designation attesting to the investment quality of a bond. Treasury and agency securities are AAA-rated, said to be "investment grade."
Registered Bond - A bond on which the owner's name appears on the certificate.
Registered Form - The recording of a security's ownership on the issuer's central ledger. Anyone delivering the security must prove that he or she is, in fact, the person to whom the securities is registered.
Registered to Principal Only - A feature of a bond whose ownership is recorded on a central ledger and whose interest payments are made only when coupons are detached and cashed in. Payments are not automatically sent to the owner.
Registrar - A commercial bank or trust company that controls the issuance of securities (bonds).
Repurchase Agreement (Repo) - An agreement used to finance certain government and money market inventory positions. The brokerage firm sells securities to the financing organization with the agreement that the firm will repurchase them in the short-term future.
Revenue Bond - A municipal bond whose issuer’s ability to pay interest and principal is based on revenue earned from a specific project.
Round Lot - A standard trading unit. In common stocks, 100 shares make up a round lot. A round lot of bonds in the over-the-counter market is 5 bonds.
Securities - General name for all stocks and shares of all types. In common usage, stocks are fixed interest securities and shares are the rest, though strictly speaking, the distinction is that stocks are denominated in money terms.
Serial Bonds - An issue of bonds that matures over a period of years.
Serial Maturity - Type of bond maturity in which part of the issue matures at different times until the whole issue has matured.
Series - Refers to options with the same underlying security, same expiration date, same exercise price and the same type.
Short-Term Bonds - Those maturing within five years.
Size - The number of shares available in a quote. For example, if the quote and size on a stock is 9-3/8 to 9-1/2 3x5, it means that the bid is 9-3/8, the offer is 9-1/2, 300 shares are bid, and 500 shares are offered.
Split Fund - A mutual fund or unit trust that contains Treasury securities and other types of investments.
Spread - The difference between the bid and offer sides of a quote.
Target Fund - A mutual fund containing bonds that mature in a single year, giving the entire fund a terminal maturity in that year.
Tax Anticipation Note - A municipal note issued in anticipation of revenues from a future tax.
Tax Exempt Bonds - Municipal securities (whose interest is free from federal income tax).
Term Maturity - Bonds of an issue all mature on the same date.
Treasury Bond - Long-term (10 to 30 years), fixed interest government debt security.
Unit - At issuance, a "package" of securities, such as a bond and warrant, which become separable at a later date.
Unit Investment Trust - An investment company organized under a trust indenture that sells interest in its portfolio in terms of redeemable securities.
Unit Trust - Similar to a mutual fund. A portfolio of securities, including mortgage-backed securities, offered by a brokerage or mutual fund.
U.S. Treasury Bill (T Bill) - The shortest-term instrument issued by the federal government. The maturities of these discounted issues do not exceed one year at issuance, with three-month (90-day) or six-month (180-day) paper being very common.
U.S. Treasury Bond (T Bond) - The longest-term debt of the federal government, issued in coupon form for period of 10 to 30 years.
Volatility - Relative measure of a security's price movement during a specific time.
Voting Trust - The deposit of shares with a trustee to gain long-term corporate control.
Weighted Average Maturity - The arithmetic mean of maturities of securities held by a mutual fund.
Yield - The rate of return on an investment. There are as many computations as there are different yields, such as current yield and yield to maturity.
Yield Curve - A graph linking the term structure of interest rates and showing the general pattern of yields to maturity on Treasury obligations.
Yield Elbow - The point on the yield curve that indicates the year at which the economy's highest interest rates occur.
Yield to Call - The percentage a bond will yield to the date at which it is eligible to be redeemed by its issuer.
Yield to Maturity - The total percentage yield a bond will produce if held for its full term of maturity.
It is hard to give something new here. So we aimed at just being brief with basic terms you need to understand bonds in general, world of investment opportunities and - in short - general quid pro quo ...