Bonds
A tax anticipation bill is a Treasury bill that matures in fewer than 273 days and is repaid with tax receipts. For example, let's assume that the U.S. government is expecting a rather large inflow ...
A+ and A1 are actually two ratings from different ratings agencies: Standard & Poor's uses the A+ rating, and Moody's uses the A1 rating. Both ratings indicate a relatively high level of creditwo...
A- and A3 are actually two ratings from different ratings agencies: Standard & Poor's uses the A- rating, and Moody's uses the A3 rating. Both ratings indicate a relatively high level of creditwo...
When a bond's price is above par, the bond is selling at a premium above face value. In the bond world, par is the face value of a bond. That is, the par value is the amount the issuer promises to p...
An active bond is a corporate bond that is traded actively on the New York Stock Exchange (NYSE). Companies participating on the NYSE often choose to offer their bonds to investors in the same venu...
Active bond crowd refers to the group of bond traders of the New York Stock Exchange (NYSE) that trades the highest volume of active bonds. Members of the NYSE's active bond crowd include those trad...
Advance refunding occurs when a bond issuer, usually a municipality, invests the proceeds from the sale of new bonds in U.S. Treasurys with the intent of using the Treasurys to pay off the old bonds....
Agency bonds are bonds issued by agencies of the U.S. government. Two types of entities issue agency bonds: government corporations, which are entities owned or controlled by the federal government,...
In the bond world, at par means "equal to face value." Face value, also known as par value, is the amount the issuer promises to pay the bondholder when the bond matures. Let's assume Company XYZ is...
The Automated Bond System (ABS) is a computerized platform that tracks the prices for inactive bonds on the New York Stock Exchange (NYSE). Many bonds on the NYSE do not experience much price moveme...
Baby bonds are bonds with a par value below $1,000. Additionally, the term also refers to savings bonds issued by the Treasury Department from 1935 to 1941. In the United Kingdom, the term refers t...
Bad paper refers to uncollateralized bonds (typically with short maturities) that are poorly rated and at high risk of default. For example, let's assume Company XYZ is teetering on the verge of ban...
A bailout bond is intended to help ailing companies. Bailout bonds were most common in the 1980s and 1990s when many savings and loans were failing; they are less common  now. Company XYZ is in the...
In the bond world, balloon interest is an increase in the coupon rate of a bond issue corresponding to the maturity of the bond. Serial bonds often use balloon interest. To understand balloon intere...
A balloon maturity is a the date on which a large payment is due, usually at or near the end of a loan term.In the bond market, a balloon maturity refers to the idea that a large portion of an issuer...
The Barclays Capital U.S. Aggregate Bond Index is the most common index used to track the performance of investment grade bonds in the U.S. The Barclays Capital U.S. Aggregate Bond Index is weighted...
In the bond world, below par means "below face value." Face value is the amount the issuer promises to pay the bondholder when the bond matures. Let's assume Company XYZ issues $10 million in bonds...
A bond is an agreement between an investor and the company, government, or government agency that issues the bond. When investors buy a bond, they are loaning money to the issuer in exchange for inte...
The bond equivalent yield (BEY) is a formula that allows investors to calculate the annual yield from a bond being sold at a discount. The bond equivalent yield enables investors to compare the yiel...
A bond fund is a mutual fund or exchange traded fund (ETF) composed of bonds. Bond funds come in many shapes and sizes. Some of the major bond-fund categories are: U.S. Treasury bond funds Municipal...
A bond ladder is an investment strategy whereby an investor staggers the maturity of the bonds in his/her portfolio so that the bond proceeds mature and can be reinvested at regular intervals. For e...
A bond option is a derivative contract that allows investors to buy or sell a particular bond with a given expiration date for a particular price (strike price).  For example, a call bond option he...
A bond quote refers to a bond's market price. The market prices of bonds are quoted as a percentage of the bonds' par value. Bonds issued by companies are quoted in increments of 1/8th (0.125) and b...
A bond rating is a "grade" assigned to a bond. These ratings can also be assigned to bond issuers, insurance companies or other entities or securities to indicate riskiness. Bond rating agencies lik...
A bondholder is a person who owns a bond issued by a borrower, typically a company or a government. They are considered a creditor of a company. A bond represents a loan agreement between an issuer ...
A book-entry savings bond is a savings bond issued in electronic form rather than in paper form. Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to $10,000. A...
Brady bonds are U.S. Treasury bonds issued by developing countries in an effort to reduce these countries’ external debt. Named for former U.S. Treasury Secretary Nicholas Brady, Brady bonds were ...
A cabinet security is an inactive security (often a bond) that is listed on an exchange. Before the advent of computers, it was necessary to move physical evidence of securities and orders. When sec...
A call date is the date after which a bond issuer can redeem a callable bond. Callable bonds usually have a call schedule. This is a series of call dates on or before which the issuer can redeem the...
The call price is the price a bond issuer or preferred stock issuer must pay investors if it wants to buy back, or call, all or part of an issue before the maturity date. The bond indenture will sti...
Call protection is a period of time during which a bond issuer cannot call, or buy back, a bond. Call protection is described in a callable bond's indenture. Callable corporate and municipal bonds u...
A call provision is a clause in a bond's indenture granting the issuer the right to call, or buy back, all or part of an issue prior to the maturity date. The bond indenture will stipulate when and ...
Call risk is the risk that a bond issuer will redeem its bonds before they mature. Some bonds are callable, that is, the issuer has the right to call, or buy back all or some of the bonds before the...
A callable bond gives the borrower (issuer) the right to pay back the obligation to the lender (bondholder) before the stated maturity date. A callable bond (also called a "redeemable bond") is a bo...
A canary call is a step-up bond that can't be called after a certain period. A step-up bond is a bond with a coupon that increases (“steps up”), usually at regular intervals, while the bond is o...
Cash-flow matching is an investing strategy for investors who need to fund a series of future cash needs.  Buy-and-hold and indexing strategies are about generating steady rates of return in a port...
Catastrophe calls are provisions in bonds that allow the issuer to call the bonds if the item built or produced by the bond is destroyed. Let's assume ABC Town wants to build a new toll road, but it...
A collateralized bond obligation (CBO) is a bond that uses a variety of high-yield junk bonds as collateral. These bonds are separated, or pooled, into tranches with higher and lower levels of risk. ...
A collateralized debt obligation (CDO) is a security that repackages individual fixed-income assets into a product that can be chopped into pieces and then sold on the secondary market. They are call...
A collateralized mortgage obligation (CMO) is a fixed income security that uses mortgage-backed securities as collateral.  Like other structured securities, CMOs are subdivided into graduated risk c...
A commercial mortgage-backed security (CMBS) is a fixed-income security, typically in the form of a bond, which uses commercial real estate loans as collateral. A CMBS is comprised of numerous comme...
A convertible bond gives the bondholder the right to convert the bond into a fixed number of shares of common stock in the issuing company. For example, consider a Company XYZ bond with a $1,000 par...
In the bond world, convexity refers to the shape of the yield curve and  how sensitive bond prices are to changes in interest rates. The degree to which a bond's price changes when interest rates c...
Corporate bonds are debt instruments created by companies for the purpose of raising capital. They are called fixed-income securities because they pay a specified amount of interest on a regular basi...
A coupon bond, frequently referred to as a "bearer bond," is a bond with a certificate that has small detachable coupons. The coupons entitle the holder to interest payments from the borrower.  Ac...
The coupon equivalent rate (CER), also known as the bond equivalent yield (BEY), is the effective yield on a zero-coupon bond when calculated as if it paid a coupon. To calculate the coupon equival...
The coupon equivalent yield is the effective annual interest rate earned on a bond. It is used to understand what the annual return is or would have been on an investment lasing less than one year. T...
In the finance world, the coupon rate is the annual interest paid on the face value of a bond. It is expressed as a percentage. The term "coupon rate" comes from the small detachable coupons attach...
A covenant is a promise a company makes, usually in return for a loan or bond issue. Covenants are most common in lending agreements and bond indentures. They can be financial or operational in natu...
A credit spread is the difference between the yields of two bonds that offer the same coupon and have the same maturity. Since yield reflects the risk of a bond, the credit spread reflects the differ...
Current yield represents the prevailing interest rate that a bond or fixed income security is delivering to its owners. The formula for current yield is defined as follows: CY = Annual interest paym...
A day-count convention is a method of counting the days between coupon dates. Let's assume a $1,000 bond from Company XYZ has a 10% coupon, which means it pays out $100 a year. The bondholders get t...
A death bond is a bond backed by life insurance policies. Let's say Company XYZ is a life-settlement provider. A life-settlement provider purchases whole and universal life insurance policies from p...
A death put is an option added to a bond that gives the bondholder's estate the right, but not the obligation, to sell the bond back to the issuer at face value if the bondholder dies. Bob buys a bo...
Debentures are bonds that are not secured by specific property or collateral. Instead, they are backed by the full faith and credit of the issuer, and bondholders have a general claim on assets that ...
A debt security is an investment in a debt instrument issued by a corporation or government as it borrows money. Commonly, the security, also referred to as a bond or fixed income security, will be i...
A deep discount bond is a bond that sells at a price which is 20% or more below the face value of the bond, and carries a low rate of interest during the term of the bond.   The investor purchases ...
Default risk is the chance that the bond issuer will not make the required coupon payments or principal repayment to its bondholders. Although the definition of default risk may be fairly concrete, ...
A deferred interest bond is a bond which pays interest in full upon maturity. A deferred interest bond, unlike most bonds, does not pay interim (coupon) payments between issuance and maturity. Rathe...
A bond’s duration is a measure of the bond’s sensitivity to interest rate changes. Duration may also be thought of as a measurement of interest rate risk.  Many new bond investors confuse the fi...
In the mortgage business, a dwarf is a group of mortgage-backed securities that mature in fewer than 15 years. The Federal National Mortgage Association (FNMA or Fannie Mae) issues dwarves. Mortgage...
Early amortization refers to the accelerated repayment of bond principal, generally for an asset-backed security (ABS). Early amortization is also referred to as payout events or early calls. Early ...
An early call refers to the accelerated repayment of bond principal, normally on an asset-backed security (ABS). An early call is also known as early amortization or a "payout event." An early call...
EE Bonds are one of two types of savings bond sold by the U.S. Treasury (the other is I Bonds). EE Bonds are zero-coupon bonds in that they earn interest monthly but do not pay that interest until t...
Effective duration is a calculation used to approximate the actual, modified duration of a callable bond. It takes into account that future interest rate changes will affect the expected cash flows f...
For bonds, effective yield is an annual rate of return associated with a periodic interest rate. The formula for effective yield is: [1 + (i/n)]n - 1 Where: i = the nominal rate n = the number of pa...
An election period is a window of time during which a person can take a certain action. In the bond world, the term refers to the period of time a holder of an extendible or retractable bond can exte...
An equity linked note (or ELN) is a debt instrument that varies from a standard fixed-income security in that the coupon is built on the return of a single stock, basket of stocks, or equity index, o...
As the name implies, equity-linked securities (ELKS) are hybrid debt securities whose return is connected to an underlying equity (usually a stock). ELKS pay a higher yield than the underlying securi...
An equivalent taxable interest rate (also called equivalent taxable yield) is the return that is required on a taxable investment to make it equal to the return on a tax-exempt investment. The equiva...
A eurobond is a bond denominated in a currency not native to the issuer's home country. Eurobonds are commonly issued by governments, corporations, and international organizations. Let's assume Comp...
An exchangeable bond gives the holder the option to exchange the bond for the stock of a company other than the issuer (usually a subsidiary) at some future date and under prescribed conditions. This...
Expectations theory suggests that the forward rates in current long-term bonds are closely related to the bond market's expectation about future short-term interest rates.  Expectations theory att...
Face value, also referred to as par value or nominal value, is the value shown on the face of a security certificate, including currency. The concept most commonly applies to stocks and bonds, so it ...
A fallen angel is a bond which once carried a high rating and displayed exceptional performance, but has since experienced a serious sustained decline in ratings and market demand. For the last five...
The Federal Open Market Committee (FOMC) is main policy-making body of the Federal Reserve. The FOMC is responsible for conducting open market operations. An open market operation is the buying or se...
A final maturity date is the date upon which all principal and interest must be repaid. Any debt instrument is made of interest and principal components which an issuer is implicitly obligated to re...
Flat yield curve refers to a yield curve which reflects little or no disparity between short-term and long-term interest rates. A flat yield curve is essentially a horizontal line representing simil...
G7 bonds are generally regarded as less risky than bonds issued by other countries. Accordingly, they are often more liquid than sovereign debt from other countries and are sometimes preferred by con...
A general obligation bond is a municipal debt issue that is secured by a broad government pledge to use its tax revenues to repay the bond holders. General obligation debt issued by local government...
Gilts are bonds issued by the British government. India's government bonds are also called gilts. Gilts get their nickname from the gilded edges that the security's certificates used to have. In Br...
A government bond is debt issued by the government. The Treasury Department usually issues government bonds, typically through an auction process. Institutional investors make up most of the market ...
A guaranteed bond is a bond whose interest and principal payments are guaranteed by a third party. An entity that issues a guaranteed bond has solicited a third party (usually a bank, insurance com...
Hard call protection is a provision in a callable bond that limits the issuer's ability to exercise the call feature. A callable bond allows the issuer to repay the bond's principal balance before i...
A harmless warrant is a bond provision that instructs a holder to relinquish the bond to the issuer should the holder purchase another bond from the same company with comparable features. A bond wit...
High-income trigger securities (HITS) are senior unsecured debt securities that pay an annual coupon rate and repay their original principal either in cash or shares, depending on the issuer's stock ...
A high-yield bond is a corporate bond with a credit rating below BBB (also called a junk bond). High-yield bonds are high-risk investments, and for this reason they (and the mutual funds that inves...
A high-yield bond fund is a mutual fund that invests in corporate bonds rated below BBB (i.e., high-yield bonds, also called junk bonds). High-yield bonds are high-risk investments, and for this rea...
A high-yield bond spread is simply the difference in yield between two high-yield debt securities or, more commonly, two classes of high-yield debt securities. Let's assume that junk bond X is yield...
An I Bond is one of two types of savings bonds sold by the U.S. Treasury (the other is the EE Bond). The U.S. Treasury has issued many different series of savings bonds over the years, but only I Bo...
An indenture agreement is the formal contract between a bond issuer and the bondholders. It sets forth the details of all the terms and conditions of the bonds, such as the exact day of their maturit...
Inflation-indexed securities are a form of savings that protects the principal and interest from the erosion of inflation. One of the most significant economic threats to anyone living on a fixed in...
Interest rate risk is the chance that an unexpected change in interest rates will negatively affect the value of an investment. Let's assume you purchase a bond from Company XYZ. Because bond prices...
International bonds are debt securities issued by foreign companies or governments and sold domestically. Foreign companies or governments may issue bonds that are securitized and sold to domestic i...
An inverted yield curve, also called a negative yield curve, is a yield curve indicating that short-term yields are higher than long-term yields. Also known as the term structure of interest rates, ...
Investment grade is a quality designation ascribed by rating agencies to bonds that have little risk of default. Municipal and corporate bonds are rated by credit agencies, such as Standard & Po...
A joint bond is a bond that is backed by an issuer and one or more additional guarantors. A company that wants to raise capital using bonds may choose to issue joint bonds if it generates low or flu...
A jumbo pool is a security backed by mortgages from several issuers. To understand how jumbo pools work, it's important to understand how they're created. Let's assume you want to buy a house, so yo...
A junk bond is a fixed-income security that is rated below investment grade by one or more of the major bond ratings agencies.  A junk bond works the same as most other bonds: An investor purchase...
Also known as a Matilda bond, a kangaroo bond is a bond issue in the Australian market by a non-Australian company. Let's say Company XYZ is headquartered in San Diego. It specializes in research an...
Key rate duration is not the same as effective duration. Effective duration is an estimate of a security's sensitivity to a parallel shift in interest rates, meaning that it assumes that interest rat...
Laddering is a bond investment strategy whereby an investor staggers the maturity of  the bonds in his/her portfolio so that the bond proceeds can be reinvested at regular intervals. For example, s...
A long bond is a Treasury bond that is issued for an extended period of time (twenty to thirty years).  /*-->*/ The investing public can purchase long bonds from brokers. The desire to obtain t...
The Macaulay duration (named after Frederick Macaulay, an economist who developed the concept in 1938) is a measure of a bond's sensitivity to interest rate changes. Technically, duration is the weig...
A make-whole call provision is a call provision attached to a bond, whereby the borrower must make a payment to the lender in an amount equal to the net present value of the coupon payments that the ...
Mandatory Convertibles are hybrid securities (bonds linked to equities) that automatically convert to equity (stock) at a pre-determined date. Common names are PERCS (Preferred Equity Redemption Cumu...
Market discount is the loss in market value sustained by a bond following an increase in interest rates. In the secondary bond market, bond prices move inversely to interest rates. That is, an incre...
Also known as a kangaroo bond, a Matilda bond is a bond issue in the Australian market by a non-Australian company.   Let's say Company XYZ is headquartered in San Diego. It specializes in researc...
Maturity is the date on which a bond or preferred stock issuer must repay the original principal borrowed from a bondholder or shareholder. Let's assume that on January 1, 2000, you purchased an XYZ...
Maturity date refers to the date on which the principal and interest associated with a debt security must be repaid to the holder in its entirety. Debt instruments such as bonds, CDs, and commercial...
Coined the "Junk Bond King" during the 1980s, Michael Milken was instrumental in engineering a lucrative junk-bond market before being indicted on numerous counts of securities fraud. After serving a...
Moody's Corporation (NYSE:MCO) is a publicly traded financial services company. Moody's Corporation operates two segments: Moody's Investor Service and Moody's Analytics. Moody's Investor Service pr...
A mortgage bond uses a mortgaged property as collateral. A mortgage bond is collateralized by one or several mortgaged properties. In case of default, the mortgaged properties may be sold to pay bac...
A municipal bond, commonly referred to as a "muni" bond, is a debt security issued by a state or local government. /*-->*/ The purchaser of a municipal bond is effectively loaning money to a gov...
Municipal investment trusts (MITs) are entities that hold a stake in numerous municipal bonds and then sell shares to the public that represent an interest in those bonds. When the municipal bonds th...
The Municipal Securities Rulemaking Board (MSRB) regulates municipal bond underwriters and dealers in an attempt to prevent fraud and manipulation in the issuance and trading of municipal bonds. Cong...
Negative butterfly refers to a change in the yield curve whereby medium-term yields change by a greater magnitude than short-term and long-term yields. It is important to note that the negative butte...
Negative convexity refers to the shape of a bond's yield curve and the extent to which a bond's price is sensitive to changing interest rates. The degree to which a bond's price changes when interes...
Net debt to assessed valuation is a term used in the municipal bond world to compare the value of debt to the value of the issuer's assets purchased or assessed. The formula for net debt to assessed...
Net debt to estimated valuation is a term used in the municipal bond world to compare the value of debt to the market value of the issuer's assets. It is not the same as net debt to assessed valuatio...
A net revenue pledge requires issuers of municipal bonds to use their net revenues (revenue minus expenses) to pay the principal and interest of the municipal bonds before any other use. Let's assum...
Also called a positive yield curve, a normal yield curve is one in which short-term yields are lower than long-term yields. A yield curve is a graph that plots the yields of similar-quality bonds ag...
An off-the-run Treasury is any Treasury bill or note that is not part of the most recent issue of the same maturity. For example, let's assume that in March, the U.S. Treasury issues 10-year bonds. ...
An off-the-run Treasury yield curve is a yield curve based on the maturities, prices, and yields of Treasury bills or notes that are not part of the most recent issue of Treasury securities. For exa...
Par value is the face value of a bond. It is the principal amount that the lender (investor) is lending to the borrower (issuer). Let's assume Company XYZ issues $1,000,000 in bonds to the public. I...
The term "payee" refers to an individual or entity that will receive a payment. It can also be referred to as the beneficiary in situations that pertain to a benefactor.  There are a number of exam...
A payment in kind (PIK) bond is a bond that pays interest in additional bonds instead of cash. Instead of the returns on a bond being paid in cash, the dividend is returned to the bond buyer in the ...
A perpetual bond is a debt with no maturity date. Investors may collect interest from these bonds indefinitely much as they would expect from a dividend-paying stock or preferred stock. Such a bond i...
A premium put convertible bond is a bond that can be redeemed by the investor at premium before its maturity date. Premium put convertible bonds have a feature comparable to a put option that permit...
Principal-only STRIPS are synthetic zero-coupon bonds that are based on the principal component of Treasury securities. STRIPS stands for Separate Trading of Registered Interest and Principal of Sec...
A private-purpose bond is a municipal bond that uses a significant amount of its proceeds to fund private activities or benefit private parties. Let's assume Company XYZ wants to open a factory in A...
A public-purpose bond is a municipal bond that is used to fund projects that benefit the general public rather than private groups or individuals. Public-purpose bond contrast with private-purpose bo...
A pure yield pickup swap describes an investing strategy where an investor exchanges lower yield bonds for higher yield bonds. In a pure yield pickup swap, an investor who holds bonds with lower yi...
A put bond permits the bond holder to force the issuer to repurchase the security before maturity.  In bond financing, the issuer sells bonds at a coupon rate (i.e., the interest rate payable on th...
Putable bonds are bonds that give the holder the right to sell his or her bond to the issuer prior to the bond's maturity date. The bond indenture will stipulate when and how the bond can be sold, a...
A rate trigger is a change in interest rates that prompts a bond issuer to call its bonds.   Let's say Company XYZ issued a bond with a 10% coupon rate this  year. The bonds mature in 10 years. ...
Refunding protection is bond provision that keeps an issuer from using cheaper debt to redeem a bond issue before it matures. Let's assume Company XYZ issues $10 million of 10% coupon bonds that mat...
Reinvestment rate is the rate at which an investor can reinvest cash flows from an investment. Put simply, an investor might receive, say, a 6% dividend, but what does he do with that money when he ...
Reinvestment risk is the chance that an investor will not be able to reinvest cash flows from an investment at a rate equal to the investment's current rate of return. For example, consider a Compan...
*/ ROI (or Return On Investment) measures the gain or loss generated by an investment in relation to its initial cost. It allows the reader to gauge the efficiency and profitability of an investment...
Revenue bonds are municipal bonds that are issued to fund specific projects that generate their own revenue. Let's assume ABC Town wants to build a new toll road, but it doesn't have the money to fu...
Rising star companies have a low credit rating (often "junk"), but only because they are new to the bond market or still establishing a track record.  A rising star is a relatively new company that...
Samurai bonds are corporate bonds issued in Japan by a non-Japanese company.  Samurai bonds are yen-denominated bonds issue in Japan by a foreign company. The bonds are subject to Japanese bond reg...
Savings bonds are bonds sold by the U.S. Treasury. They are used to raise money from the public to fund its operations and administer the economy. When the government sells bonds, it is essentially t...
STRIPS stands for Separate Trading of Registered Interest and Principal of Securities. They are securities that represent the separate interest and principal components of Treasuries. The U.S. Treasu...
Serial bonds (or installment bonds) describes a bond issue that matures in portions over several different dates.  Instead of facing a large lump-sum principal re-payment at maturity, an issuer can ...
A sinking fund is a part of a bond indenture or preferred stock charter that requires the issuer to regularly set money aside in a separate custodial account for the exclusive purpose of redeeming th...
Special assessment bonds (also known as special assessment obligations) are municipal bonds that are repaid with taxes assessed on the land that benefits from the improvements financed by the bonds. ...
Special assessment obligations (also called special assessment bonds) are municipal bonds that are repaid with taxes assessed on the property that benefits from the improvements financed by the bonds...
A step-up bond is a bond with a coupon that increases ("steps up"), usually at regular intervals, while the bond is outstanding. Step-up bonds are often issued by government agencies. Let's consider...
STRIPS stands for Separate Trading of Registered Interest and Principal of Securities. They are securities that represent the separate interest and principal components of Treasury securities. The U...
A structured portfolio is a type of passively managed portfolio whose cash inflows are designed to meet the cash outflow requirements to fulfill a future obligation. A structured portfolio is also r...
A taxable bond is a bond whose interest payments are taxable at the federal, state and/or local level. The purchaser of a taxable bond is, in effect, lending money to a company or other entity that ...
Taxable equivalent yield (also called equivalent taxable interest rate) is the return that is required on a taxable investment to make it equal to the return on a tax-exempt investment. The taxable e...
The term structure of interest rates, also called the yield curve, is a graph that plots the yields of similar-quality bonds against their maturities, from shortest to longest.  The term structure ...
A Treasury Bill, or T-bill, is short-term debt issued and backed by the full faith and credit of the United States government. These debt obligations are issued in maturities of four, 13 and 26 weeks...
Treasury bonds ("T-Bonds") are long-term, semiannual bonds issued by the U.S. Treasury. Their maturities range from 10 to 30 years. T-Bonds are issued with $1,000 par values. T-Bonds are backed by t...
Treasury Inflation-Protected Securities (TIPS) are Treasury bonds that are adjusted to eliminate the effects of inflation on interest and principal payments, as measured by the Consumer Price Index (...
The Treasury market is where the United States government raises money by issuing debt. The U.S. Treasury currently markets four types of debt instruments: Treasury Bills, Treasury Notes, Treasury Bo...
Treasury notes, also known as T-notes, are intermediate-term bonds issued by the U.S. Treasury. They mature in two, three, five, or ten years T-notes make semiannual interest payments at fixed coupo...
TreasuryDirect is the website used by the U.S. Treasury Department to sell Treasury securities directly to investors. TreasuryDirect is the first and only financial services website that lets invest...
A trustee holds or manages cash, assets or a property title for a beneficiary. The trustee has a fiduciary duty to act in the best interest of the beneficiary.   Trustees play an important role for ...
A war bond is a bond issued to finance war. Let's say that Country X attacks Country Y. Country Y has a smaller military and defense systems, but wants to defend itself. It decides to enlarge its mi...
A wedding warrant is a bond provision that requires the holder of a bond to relinquish the bond to the issuer if the holder purchases another bond with similar features from the same company. A bond...
Yankee bonds are bonds issued in the U.S. bond market by a foreign entity, and they are denominated in U.S. dollars. Governments, companies, and other entities issue Yankee bonds. For example, let's...
A Yankee CD is a certificate of deposit issued by a foreign bank in the United States and denominated in U.S. dollars. For example, let's assume Bank ABC is in Spain and issues CDs in the United Sta...
Similar to the Pink Sheets, the Yellow Sheets are information about the prices of corporate bonds traded on the over-the-counter market (that is, bonds not listed on the mainstream exchanges). The Y...
Yield refers to the cash return to the owner of a security or investment.  In general, yield is calculated as follows: Periodic Cash Distributions / Total Cost of Investment = Yield The term yield ...
Yield advantage is the difference between yields on two different securities issued by the same company. It is the additional amount an investor can expect to earn if he or she chooses one security o...
Yield basis refers to the act of quoting bond prices in terms of yield percentages rather than in dollars. Let's assume Company XYZ has $20,000,000 in bonds outstanding that pay 5% interest per year...
Yield burning is the illegal practice of excessively marking up municipal and/or Treasury bonds in order to complete a bond offering. Let's assume interest rates have come down and City XYZ wants to...
The yield curve, also known as the "term structure of interest rates," is a graph that plots the yields of similar-quality bonds against their maturities, ranging from shortest to longest. (Note that...
Yield curve risk refers to the probability that the yield curve will shift in a manner that affects the values of securities tied to interest rates -- particularly, bonds. Also known as the term str...
A yield elbow is the highest point on the yield curve. Also known as the term structure of interest rates, the yield curve is a graph that plots the yields of similar-quality bonds against their mat...
Yield pickup is the increase in yield an investor gets by selling one bond and buying another one with a higher yield. Let's assume Jane owns a bond issued by Company XYZ with a 5% yield. Jane sells...
Yield spread is the difference in yield between two securities or, more commonly, two classes of securities. Let's assume that Bond X is yielding 5% and Bond Y is yielding 7%. The yield spread is 2%...
The yield to average life is the yield on a security based on the security's average maturity rather than the maturity date of the issue. The concept is usually applied to bonds with sinking funds, w...
Yield to call is a measure of the yield of a bond if you were to hold it until the call date. To understand yield to call, one must first understand that the price of a bond is equal to the present...
Yield to worst (YTW) is the lowest yield an investor can expect when investing in a callable bond. The concept is best illustrated with an example. Let's assume you own a callable bond issued by Com...
A yield-based option is a financial instrument that gives the owner the right but not the obligation to purchase a debt security. The value of the yield-based option depends on the difference between...
A Z-bond is a bond representing the last tranche of a bond that relies on payments from underlying securities. To understand how Z-bonds work, it's important to understand how they're created. Let's...
A Z-tranche is the last tranche of a bond that relies on payments from underlying securities. To understand how Z-tranches work, it's important to understand how they're created. Let's assume you wa...
A zero-coupon bond is a bond that makes no periodic interest payments and is sold at a deep discount from face value. The buyer of the bond receives a return by the gradual appreciation of the securi...