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Accreted Value
The current value of an original issue discount bond taking into account imputed
interest that has accumulated.
Accretion-Directed (AD)
A
CMO class, deriving its cash flows form the interest accrual of a Z-Tranche.
Because they derive their cash flows from the interest accrual of a Z-Tranche,
Accretion Directed CMOs have little extension risk even in very low prepayment
speed scenarios, and Accretion-Directed
CMOs are also sometimes referred to as Very Accurately Defined Maturity (VADM)
classes.
Accrued Interest
The accumulated
coupon interest paid to the seller of a bond by the buyer (unless the bond is
in default). The buyer of a fixed-income security must pay the seller of the
security to compensate the seller for holding the security between the last
coupon payment date and up to but not including the settlement date. The accrued
interest, added to the instrument's dollar price, constitutes the net amount.
Active Tranche
A CMO tranche that is
currently paying principal payments to investors.
Adjustable Rate Mortgage
(ARM)
A mortgage loan on which interest rates are adjusted at regular intervals according
to predetermined criteria. An ARM’s interest rate is tied to an published
interest rate index.
AD/Short Stated Maturity
An Accretion Directed CMO tranche receives principal payments from the interest
that accrues on an Accrual or Partial Accrual class CMO (a Z-Bond). Because
the principal payments are guaranteed by the interest from the Accrual bond,
an AD bond has no extension risk and its maturity can be accurately defined
even down to zero prepayments. AD bonds are also known as VADMs (Very Accurately
Defined Maturity).
Advance Refunding
A financing
structure under which new bonds are issued to repay an outstanding bond issue
prior to its first call date. Generally, the proceeds of the new issue are
invested in government securities, which are placed in escrow. The interest
and principal repayments on these securities are then used to repay the outstanding
issue until they are able to be called.
Aftermarket
Exchange and over-the-counter
markets where securities are bought and sold after the initial public offering.
Aftermarket is also known as the Secondary Market.
After-Tax Basis
The yield to
maturity taking into account federal and state income taxes. This basis is
used to compare returns of taxable bonds to the returns of tax-exempt municipal
bonds.
Agency Bonds
Agency Bonds include debt securities issued by the U.S. Government Agencies
or Government Sponsored Enterprise (GSE). Federally sponsored agencies are
not guaranteed by the US Government but they do involve some level of federal
sponsorship.
Examples of federally sponsored agencies:
Federal National Mortgage
Association [FNMA or "Fannie Mae"]
Federal Home Loan Mortgage Corporation [FHLMC or "Freddie
Mac"]
Alternative Minimum Tax
A federal income tax levied to make certain that all taxpayers pay some
tax. Municipal bonds that have been deemed non-essential to the public as a
whole (usually airport or housing revenue bonds) may be subject to taxation
if certain tax considerations are met by the investor. These certain tax considerations
vary for each investor.
Amortization
The process of incrementally
reducing a debt through installment payments of principal and interest. This
also applies to reducing the premium paid for a bond by applying part of the
interest payments to premium reduction.
APY
Annual Percentage Yield is the effective annual
rate of return, taking into account the effect of compounding interest. It is
the annual rate of return for CDs.
Arbitrage
The simultaneous sale and purchase
of the same or equivalent bonds in such a way as to take advantage of a price
difference in separate markets.
Ask Price
Price being sought for the security
by the seller.
Asset Backed
Bonds or notes backed by loan
paper or accounts receivable originated by banks, credit card companies, or
other providers of credit. Asset-Backed Securities are often enhanced by a bank
letter of credit or insurance coverage.
Auction
The process of offering bonds up for bid and selling to the highest bidder.
Auto Loans
Asset Backed Securities collateralized by principal
and interest payments of automobile loans.
Average Life
The weighted average time to
principal repayment for a mortgage pass-through, or CMO security.
Away From the Market
An order in
which the limit bid is below the market value of the security or the limit offer
is above the market value.
Baby Bond
A bond with a face value of less
than $1,000, usually in $100 denominations.
Back Office
Terminology in the securities
industry that refers to the firm's cashier and clearing operations, including
the accounting and compliance departments.
Balloon
A large principal repayment in the
later years of some serial bonds.
Bank Qualified Bonds
Indicates if the bond has been designated a “Qualified Tax-Exempt Obligation".
Barrier %
The percentage of the Strike Price in the underlying asset, at which the option
comes
into existence (Knock-In) or ceases to exist (Knock-Out). Reverse Convertibles
are
normally issued with a Strike Price set on the Initial Pricing Date. If the
underlying
asset price closes, on any day, below the Downside Protection amount of the
Strike
Price, the option is triggered or “knocked in.”
This percentage is sometimes referred to as "Downside Protection" or "Downside
Cushion".
Base Price
The price of the bonds less any markup/markdown.
Basis Point
One one-hundredth of a
percentage point. This is the most common measure of changes in bond yields.
Bear Market
A market trend that describes a sustained movement in the decrease of market.
Bearer Bonds
An instrument that is owned by whoever is in possession of the certificate. Coupons
must be submitted to the registrar for that issue to receive interest payments.
Beneficial Owner
The customer who ultimately is the owner of a security, even if the security's
title of ownership is in the name of a broker or bank ("street name").
Bid Wanted (BW)
Notice that a holder
of securities wants to sell and will entertain bids.
Blended Yield to Maturity (Interpolated)
The
combination and average of two points on the yield curve to find a yield at the
midpoint.
Blue-Sky Laws
State laws that require the registration of securities and the regulation of
the offering and sale of securities in accordance with antifraud regulation.
Bond Equivalent Yield
A calculation for restating semiannual, quarterly or monthly discount bonds
or notes yields into an annual yield.
Bond Funds
Registered investment companies
whose assets are invested in portfolios of bonds.
Bond Insurance
A service whereby
an issuer can pay a premium to a third party insurer who will provide principal
and interest payments to investors in the event of a failure of an issuer
default.
Bond Rating
A grade given to bonds that indicate their credit quality. Standard & Poors,
Moodys and Fitch are entities that provide ratings regarding a bond issuer’s
ability to pay principal and interest in a timely fashion.
Bonded Debt
The portion of an issuer's
total debt represented by outstanding long-term bonds.
Book Entry Bond
A bond that has no
physical certificate, but records of the owner are kept by a depository and its
members (banks and brokerage firms).
Broker
A registered person acting as an intermediary
between buyers and sellers of securities.
Buffer %
The percentage between the strike price of the option on the underlying security
and the price paid for the security. It is the percentage of price that
the underlying security can change without resulting in a loss of principal.
Build America Bonds
Bonds issued
by state and local governments as federally taxable governmental
bonds with Federal subsidies for a portion of their borrowing costs. The
program was created through the American Recovery and Reinvestment Act of 2009
to promote economic recovery and job promotion. The subsidies take the form
of either tax credits provided to holders of the bonds or refundable tax credits
paid to state and local governmental issuers of bonds. These bonds are considered
Municipal bonds and MSRB rules are applicable for the sale and settlement of
these bonds.
Bull Market
A market trend that describes a sustained market movement when prices are increasing
in the market.
Bullet Bond
A bond with a fixed maturity and no call features.
Buy-In (Close –Out)
When an investor is forced to purchase bonds because the seller did not deliver
the securities in a timely manner or at all. The party failing to deliver
bonds will be notified in writing. Bonds can then be purchased by the
purchaser and the selling party is obligated to pay for any difference.
Call
The action taken to pay the bond principal
and interest prior to the stated maturity date.
Call Premium
A dollar amount paid as a
penalty or premium by an issuer who exercises the right to redeem securities
Call Protection
The period of time in
which the bond cannot be called. Additionally, specifying a call protection
date in the offering search screen will return bonds that will not be redeemed,
mature, or be called until at least the date specified. Continuously callable
bonds or those callable on 30 days notice will be excluded if a call protection
date is specified.
Call Risk
The risk that
declining interest rates may accelerate mortgage loan prepayment speeds, causing
an investor's principal to be returned sooner than expected. As a consequence,
investors may have to reinvest their principal at a lower rate of interest.
Callable Bond
A condition of a bond permitting
the issuer to redeem it before maturity on specified dates at specified prices.
Cap
The highest interest rate that can be paid on a
floating-rate security.
CATS
CATS-Certificate of
Accrual on Treasury Securities, refers to a zero-coupon U.S. Treasury issue that
is sold at a deep discount from the face value and pays no coupon interest
during its lifetime, but returns the full face value at maturity.
Certificate of
Deposit
Certificates issued by banks with
maturities that vary from a few weeks to several years. The bank agrees to pay
a fixed interest rate until a specific maturity date. It is a time based
bank deposit that pays interest.
Close-Out (Buy-In)
A procedure that allows dealers to complete a delivery of securities they have
bought but not yet delivered. Firms can agree to cancel a trade or take
a substitution if all parties agree. If bonds are not delivered by the
close out date and no further arrangements have been agreed upon, then the
purchasing party can buy bonds in the open market to complete the transaction
at the expense of the party failing to deliver the bonds.
Closing Quotation
The final bid and ask price for an issue at the end of the trading day.
Collar
Upper and lower limits (cap and floor,
respectively) on the interest rate of a floating-rate security.
Collateral
Assets pledged by a borrower
until a loan is repaid. These assets are subject to seizure if the loan goes
into default.
Collateralized Mortgage Obligations (CMOS)
Bonds backed by a pool of mortgage pass-through securities or mortgage loans.
A type of mortgage backed security that creates separate traunches for different
classes of bond holders with varying maturities.
Commission
A fee paid to a broker when acting as an agent in a securities transaction.
Commercial Paper
Commercial Paper securities
are short term obligations with maturities ranging from 2 to 270 days, issued
by banks, corporations, and other short-term borrowers. Such instruments
are unsecured and usually sold at a discount.
Companion Tranche
A class of tranche found in a planned amortization class (PAC) bond that
is responsible for protecting the PAC tranche from both contraction and
extension risk. The companion bond is designed to absorb excess principal payments
during times of high prepayment speeds and defer receiving principal payments
during times of low prepayment speeds.
Compound Accreted Value
The
value of a zero coupon bond at any given time, based on the principal, with
interest compounded at a stated rate of return over time.
Concession
The compensation in an underwriting agreement paid to members of a selling
group.
Conditional Call
A clause in the indenture of a
security that permits the issuing entity to retire the security at a
predetermined price, prior to maturity, based on certain events
specified in the bond's indenture. Please see prospectus for details
on the conditional calls pertaining to the bond prior to purchasing for
your client.
Some types of conditional calls -
'A' - 'Change of
Control'
'B' - 'Drop in Receivables'
'C' - 'Sale of Equipment'
'D' -
'Destruction of Equipment'
'G' - 'Rating Downgrade'
'H' - 'Tax Law
Change'
'I' - 'Stock Premium Inc.' (Callable if stock premium increases by
certain amount over convertible bond price)
'J' - 'Proceeds of Stock Off.'
(Callable with proceeds of common stock offering)
'Z' - 'Other'
Conditional Puts - Death of Holder
The 'Death Put', also known as 'Survivor Option' or 'Estate Option', is when
the issuer is required to buy a bond back at par when the beneficial owner
of the bond dies.
Confirmation
A written acknowledgement required to be sent to parties to a transaction to
state the terms and execution of an agreement to buy or sell a security.
Convertible Bond
A bond containing a provision
that permits conversion to the issuer's common stock at some fixed exchange
ratio.
Constant Maturity Treasury
Series (CMT)
The average yield of a range of U.S. Treasuries with various
fixed maturities. The five- and ten-year CMT are commonly used as indices on
floating-rate notes whose rates are tied to long-term interest rates. The index
may be found in the Federal Reserve H.15 Report.
Constant Prepayment Rate
(CPR)
The percentage of outstanding mortgage loan principal that prepays
in one year, based on the annualized rate of the Single Monthly Mortality (SMM),
which reflects the outstanding mortgage loan principal that prepays in one
month.
Continuously Callable Bond
These bonds are callable on any date after the first call date until its maturity. The
issuer has the right to repurchase bonds back from the investor on any date.
Convexity
Measure of the sensitivity of the duration of a bond to changes in interest
rates.
Corporate Bond
Company-issued debt
instruments that are considered financial obligations of a corporation.
Corporate bonds can be broken down into three categories; debentures, medium
term notes, and commercial paper. Maturities on corporate bonds can range
from three months to one hundred years, and credit quality of issuers will
vary. Generally, corporate bonds are broken down into four sectors: industrial,
financial, transportation, and utility. They can be issued in both callable
and non-callable formats.
Cost of Funds Index (COFI), 11th
District
The monthly weighted average cost of -interest paid on checking and savings accounts
at institutions operating in Arizona, California and Nevada that are members
of the 11th Federal Home Loan Bank District. Published on the last day of the
month, the rate reflects the cost of funds for the prior month.
Coupon
(1) The interest rate, expressed as a
percent, paid on a bond.
(2) The detachable part of a bearer bond that
denotes the amount of interest due, on what date, and where payment is to be
made. Coupons generally are payable semiannually.
Coupon
Frequency
The established date for the interest payment on a bond. Most bonds pay semi-annual
interest payments. There are also bonds that pay interest monthly, quarterly
or at maturity.
Coupon Rate
The stated annual interest rate
on a security.
CP Index
Usually the Federal Reserve
Commercial Paper Composite calculated each day by the Federal Reserve Bank of
New York by averaging the rate at which the five major commercial paper dealers
offer "AA" industrial Commercial Paper for various maturities. Most CP-based
floating-rate notes are reset according to the 30- and 90-day CP composites.
CPI-U
The Consumer Price Index for All Urban Consumers, published by the Bureau of
Labor Statistics of the U.S. Department of Labor. It measures changes in the
price of a basket of goods purchased by urban consumers.
Credit Card Receivables
Asset Backed Securities collateralized by
credit card debt.
Credit Spread
A yield difference, typically in relation to a comparable U.S. Treasury security
vs a non Treasury security that are identical in all respects except for quality
rating.
Credit Enhancements
Credit support purchased by an issuer from an entity other than a monoline
insurer.
Current Face
The current remaining monthly
principal on a mortgage security. Current face is computed by multiplying the
original face value of the security by the current principal balance factor.
Current Yield
A measure of the return on a bond, calculated by dividing the annual interest
on the bond by the amount paid for the bond. It is the actual income rate or
the yield to maturity as opposed to the coupon rate.
CUSIP Number
The nine digit ID assigned to a bond by the Committee on Uniform Security Identification
Procedures, which was established under the auspices of the American Bankers
Association to develop a uniform method of identifying securities.
Custodial Receipt
An evidence of ownership of a security that is actually held by the transfer
agent. The security is non transferable in this form.
Dated Date
The effective date of a new issue and the date from which the bondholder is
entitled to receive interest. The bondholder may actually receive the bonds
on a different date.
Day Count
The date of a bond issue from which the first owner of a bond is entitled to receive interest.
Day Order
An order that is valid only for the
remainder of the trading day in which it was entered.
Deal Number
The industry standard name for a CMO
or asset-backed deal. Freddie Mac Deal Numbers are simple chronological sequence
numbers. Fannie Mae, Ginnie Mae and many private label CMOs and asset backed
Deal Numbers consist of a hyphenated combination of the year of issuance and a
sequence number, e.g., FNR 2005-47 represents the 47th Fannie Mae deal in 2005.
Dealer
An individual or firm acting as a
principal rather than a broker or agent. An individual or entity, such as a
securities firm, that acts as a principal and stands ready to buy and sell for
its own account.
Debenture
Unsecured debt obligation, used
against the general credit of a corporation, rather than against a specific
asset.
Default
Failure to pay principal or interest
when due.
Deep Discount Bonds
Bonds selling for a price much less than the par value,. Bonds selling at an
original issue discount are not included in this category.
De Minimis Rule
A rule that states capital gains tax must be paid on a bond purchased in the secondary market at a discount to the face value in excess of a quarter of 1% multiplied by the number of full years to maturity. This entitles the holder to preferential capital gains tax rates on the appreciation to par (within De Minimis). If the purchase price is below the cut off threshold all appreciation to par is subject to ordinary income tax rates (at Market Discount).
Denomination
The increments or values of bonds for purchasing and delivery purposes.
Discount
The difference between a bond's
current market price and its face value. This can be expressed in either a
dollar amount or as a percentage.
Discount Margin
The effective spread to
maturity of a floating-rate security after discounting the yield value of a
price other than par over the life of the security.
Discount Note
Short-term obligations
issued at discount from face value, with maturities ranging from overnight to
360 days. Interest is paid at maturity.
Discount Rate
The rate the Federal
Reserve charges for loans to member banks.
Discount Yield
The yield on a security
sold at a discount.
Dividend Rate
The fixed or floating rate paid
on preferred stock.
Dollar Price
The unit in which the market
quotes a fixed-income security, usually stated as a percentage of the security's
face value, the fractional component of which may be quoted in terms of
decimals, 8ths, 32nds, or 64ths. The dollar price does not include accrued
interest.
Double-Exemption Bonds
Bonds
that are exempt from both state and federal income taxes.
Downgrade
The lowering of a bond's rating.
Downside Cushion
The percentage of
the Strike Price in the underlying asset, at which the option comes into existence
(Knock-In) or ceases to exist (Knock-Out). Reverse Convertibles are normally
issued with a Strike Price set on the Initial Pricing Date. If the underlying
asset price closes, on any day, below the Downside Protection amount of the
Strike Price, the option is triggered or "knocked in".
Due Diligence
Investigation of a bond
issue by bond counsel for underwriters and issuers to insure that all material
information has been included in the official statement.
Duration
The linear measure of how the price changes in response to interest
rate changes.
Embedded Option
An option that is an inseparable
part of another instrument.
Emerging market
A financial market of a
developing country, usually a small market with a short operating history.
Escrowed Municipals
Proceeds from a new bond
issue are held in a separate escrow account to pay off existing bond issue when
it matures.
Escrowed to Maturity
Excess
revenues from an issue are placed in an escrow account for the express purpose
of ensuring payment of bonds at maturity. When funds in the escrow account are
adequate to pay off the bond, it becomes escrowed to maturity.
Exclude Bid Side Only
When searching for bonds, users expect to receive search results with an offer side
only market and/or bonds that have a two-sided market. They do not expect to see
bonds with a bid side only market on search results. This check box defaults to selected
to prevent bonds with bid side only markets from being returned in search results.
EXMT AMT
The interest on these bonds is not considered tax preference items, and therefore
is not used in calculations to determine potential liability to AMT.
Extension Risk
The risk that rising interest rates will slow the anticipated rate at which
mortgages or other loans in a pool will be repaid, causing investors to find
their principal committed longer than expected.
Face Amount
The value at maturity of a
bond. This is also called par.
The principal amount the bond will pay at maturity.
Factor
A decimal value reflecting the proportion
of the outstanding principal balance of a mortgage security, which changes over
time, in relation to its original principal value.
Factored Quantity
Factored quantity is the outstanding amount of pro rata bonds that
pay down concurrently based on the proportion of the balance of bonds outstanding
in the issue.
Fannie Mae
The Federal National Mortgage Association. A Government Sponsored Enterprise
(GSE) of the US Government for the purpose of making and guaranteeing loans.
Monthly principal and interest payments are guaranteed by FNMA but not directly
by the U.S. Government.
FDIC TLGP Insured (Federal Deposit Insurance Corporation -
Temporary Liquidity Guarantee Program)
Temporary Liquidity Guarantee Program – a temporary FDIC guarantee of
newly issued senior unsecured debt and the temporary and unlimited FDIC guarantee
of the coverage of funds in non-interest bearing transaction accounts at FDIC
insured institutions.
Fed Funds Effective Rate
The
overnight rate at which banks lend funds to each other, usually as unsecured
loans from regional banks to money center banks. The Fed Funds rate is the
average dollar weighted rate of overnight funds.
Federal Financial Institutions Examination Council (FFIEC)
The Council
is a formal interagency body empowered to prescribe uniform principles, standards,
and report forms for the federal examination of financial institutions by
the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit
Insurance Corporation (FDIC), the National Credit Union Administration (NCUA),
the Office of the Comptroller of the Currency (OCC), and the Office of Thrift
Supervision (OTS), and to make recommendations to promote uniformity in the
supervision of financial institutions.
Federal Funds Rate
The interest rate
charged by banks on loans of their excess reserve funds to other banks. The
Federal Reserve's ability to add or withdraw reserves from the banking system
gives it close control over this rate.
Federal Reserve Bank
One of 12
central banks that make up the Federal Reserve System. These banks regulate
money, banking and credit.
Federal Reserve Board
The governing board of the Federal Reserve System. Their responsibilities include
setting bank reserve requirements, discount rates, implementing monetary policies,
establishing regulations for banks and maintaining stability of the financial
system.
Financial Sector Bonds
Bonds issued by
companies in the financial sector may include: Banks, Finance, Insurance,
Brokers, REITS, and Savings & Loans.
Firm Executable
This term applies to bids and offerings that are available for execution at
the quoted price and quantity, usually for a limited period of time.
Firm Offerings
Securities offered for sale at firm
prices.
First Call Date
The earliest date in a
schedule of call dates, indicating the prices at which a bond can be called on
each corresponding call date. This schedule accompanies the right of a bond
issuer to redeem a bond before its maturity date.
Fitch Credit Ratings
A designation
given by Fitch to indicate the relative credit quality, or the strength of the
ability to pay a bond's obligation.
Fixed-Income Security
A security, such as a note or bond, that pays a stated rate of interest during
the term of the security and returns principal at maturity.
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 CMO
A CMO 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 Issuer
Any issuer which is a foreign government, a national of any foreign country, or a corporation or
other organization incorporated or organized under the laws of any foreign country.
Fourth Market
Trading of securities between investors who do not use the services of broker
dealers or an exchange.
Frequency
The interval of time
(semi-annually, quarterly) at which interest payments are paid to the owner of
a bond .
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 high grade bond issued by a blue chip company and meets its required payments
of principal and interest with little risk of default.
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.
Green Bond
Green bonds are bonds that earmark
proceeds for climate or environmental projects and have been labeled as 'green'
by the issuer (data provided by The Climate Bonds Initiative).
Government Bonds
Bonds issued by
governments or agencies of governments.
Government National
Mortgage Association (GNMA)
Also known as "Ginnie Mae." A US Government owned corporation operated
within the Department of Housing and Urban Development that provides guarantees
on Mortgage Backed Securities backed by federally insured or guaranteed loans.
The securities are the only mortgage backed securities guaranteed by the U.S.
government.
Government Sponsored Enterprise (GSE)
Privately held corporations with the public purpose to reduce the cost of capital
for certain borrowing sectors.
Grantor Trust
Special-purpose vehicle set
up to issue fixed-rate capital securities and use the proceeds to purchase
debt of the parent company.
Hedge
An investment made with the intention of
minimizing the impact of adverse movements in interest rates or securities
prices and minimize exposure to market risk.
High-Grade Bonds
Top-rated bonds,
usually triple-A, that carry relatively little risk of default.
High Yield Bonds
Also called "junk bonds." These bonds are usually rated lower than
BBB/Baa and are considered to have a higher risk of default. The yields are
also higher on these bonds than on investment grade bonds.
Home Equity Loans
The largest category of Asset Backed
Securities, these securities are collateralized by home equity loans.
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 single-family or multifamily housing.
IDC Financial Publishing Rank
Ranks are the opinion of IDC Financial Publishing, Inc. Ranks range
from 1 (the lowest) to 300 (the highest) and fall into one of the following
six groups:
Superior (200-300) Banks rated Superior are simply the best by all measures. In addition to favorable capital ratios, most consistently generate ROE above COE.
Excellent (165-199) Banks rated Excellent are strong institutions. Their ratios reflect quality management both from a balance sheet and income performance standpoint. Operating expenses and costs of funding are under control, producing a healthy return on equity (ROE).
Average (125-164) Banks rated Average meet industry capital standards. When compared to excellent and superior rated banks, most exhibit lower quality loans and narrower profit margins. A specific problem is a low operating profit margin, and/or a large standard deviation in the operating profit margin. The marginal problems of the average bank require shifts in policies and practices to raise asset quality or improve profits.
Below Average (75-124)Banks rated Below Average represent institutions under strain. Average loan delinquency is high. In some banks, liquidity ratios demonstrated risk. In many, excess high risk loans or assets are above the loan loss reserve and threaten equity capital. A specific problem is a low operating profit margin, and/or a large standard deviation in the operating profit margin. Return on financial leverage is negligible, on average, due to narrow (or negative) leverage spreads. Banks are also rated Below Average
if they are deemed "Adequately Capitalized" per FDIC capital definitions.Lowest Ratios (2-74)This Lowest Ratios group contains some banks with less than minimum capital required. In some banks, liquidity ratios demonstrated risk. In many, increasing loan loss provisions expand net losses on the income statement and, along with the excess of net charge-offs, reduce capital ratios. A specific problem is a low operating profit margin, and/or a large standard deviation in the operating profit margin. A high number of failed banks were rated Lowest Ratios prior to failure. Banks are also rated Lowest Ratios if they are deemed "Under Capitalized" or "Significantly Under Capitalized" per FDIC capital definitions. Banks may also be rated Below Average if they are deemed "Adequately Capitalized" and have a high volatility in operating profit margins.
Rank of One (1)Banks in the Rank of One group have the highest probability of failure. Loans 90-days past due, non-accrual loans, restructured loans, and other real estate owned, on average, exceed the loan loss reserve and equity capital by a wide margin. Liquidity ratios demonstrated risk. Without major balance sheet improvement, these banks will fail. Banks are also rated Rank of One if they are deemed "Critically Under Capitalized" per FDIC capital definitions.
Each bank in the Bank Financial Quarterly has a one-line analysis of financial ratios and a one-number summary rank. IDCs' unique CAMEL analysis utilizes financial ratios that have a significant impact on the quality of banks:
Capital risk is determined by Tier I capital as a percent of assets and as a percent of risk-based assets. Tier I & II capital as a percent of risk-based assets (risk-based capital ratio) measures credit and interest rate risk as well as estimates risks in the asset base.
Asset quality is measured by the levels of loan delinquency, non-accrual loans, and high risk assets relative to loan loss reserves and capital ratios. Risk-adjusted assets as part of the risk-based capital ratio further define the quality of assets.
Margins are the best measurement of management's financial controls. Margins represent the spreads between 1) operating profit and net operating revenues, 2) after-tax return on earning assets and cost of funding, and 3) the return on equity compared to estimated cost of equity capital, and 4) NOPAT return on equity compared to the cost of equity capital.
Earning returns measure the success of the bank's operating strategy. Ratios of revenue yields from investments, loans, and non-interest income with comparison to operating costs, loan loss provision, net loan charge-offs, and net non-operating income ratios are the major components of the net operating after-tax return on earning assets (ROEA). Earnings from financial leverage measure the level of leverage and after-tax cost of funding compared to the after-tax return on earning assets (ROEA). Leverage returns measure the efficiency of the bank's financial strategy. Operating assets are financed with the leverage of deposits and borrowings to Tier I capital and its comparative cost. The leverage multiplier illustrates the degree of leverage, while the leverage spread measures its cost relative to operating returns (ROEA).
Liquidity measures 1) balance sheet cash flow as a percent of Tier I capital and 2) illiquid loans compared to stable deposits and borrowings plus available lines of credit at the Federal Home Loan Bank. Leverage returns measure the efficiency of the bank's financial strategy. Operating assets are financed with the leverage of deposits and borrowings to Tier I capital and its comparative cost. The leverage multiplier illustrates the degree of leverage while the leverage spread measures its cost relative to operating returns.
200 - 300 Superior 165 - 199 Excellent 125 - 164 Average 75 - 124 Below Average 2 - 74 Lowest Ratios 1 Rank of One NC Not Calculated TOTALS:
Index Linked
A bond that has a coupon rate that varies according to some underlying index
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 US Government or 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
price 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 principal of a specific issue of
notes or bonds.
Inverse Floater
A CMO 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). A bond that has an inverse relationship to short term
interest rates.
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 (Interest Only) Security
In the case
of a CMO, an IO tranche is created deliberately to pay 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 and interest begins to accrue.
Issue Description
The description of
the bond listing title of the issue, name of issuer, coupon and maturity
date.
Issuer
A legal entity that develops, registers and sells securities for the purpose
of financing its operation.
Jumbo Pools
Ginnie Mae II pass-through
mortgage securities collateralized by pools that are generally larger and
contain mortgages that are often more geographical diverse 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 BB or lower, generally paying interest above
the return on more highly rated investment grade bonds; sometimes referred
to as high-yield bonds.
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
A limit order is an order to buy a security at no more (or
sell at no less) than a specific price. This gives the customer some control
over the price at which the trade is executed, but may prevent the order from
being executed.
Limited Tax Bond
A bond secured by a
pledge of a tax or category of taxes limited to rate or amount.
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 selling without significant losses.
Listed
Bonds that are listed and traded over the
major exchanges: NYSE, AMEX.
Lockout
The period of time before a CMO
investor will begin receiving principal payments.
Make Whole Call
A type of call provision allowing the issuer to pay off the remaining debt. The issuer must pay bondholders based on the net present value of all future coupon payments that would have been made. In this way, bondholders are �made whole.�
Market
A pricing methodology used to sell the
bond at its best price available at the time the order is filled.
Market Discount Point
The threshold price which determines the tax treatment of a bond purchased in the secondary market at a discount. If purchased above the Market Discount Point (within De Minimis) the appreciation to par is generally taxed at preferential capital gains tax rates. If purchased below the Market Discount Point (at Market Discount) the appreciation to par, in its entirety, is subject to ordinary income tax rates. See De Minimis Rule.
Mark-To-Market
The recording of the
actual market values of securities.
Market Maker
A firm or person that accepts risk and is actively involved in making bids
and offers in certain securities to facilitate trading in that security.
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. When the trading is
less active and spreads are larger, it is considered poor.
Marketability
A measure of the ease with
which a security can be sold in the secondary market.
Markup/Markdown
The fee charged by a dealer who buys or sells a security as principal and buys
or sells it at a higher price. The fee is included in the price of the bond
and is not listed separately in the order confirmation.
MarketView
MarketView is a price discovery
tool, which aggregates several points of current market data including reported
trades from TRACE or MSRB for a specific CUSIP, and comparable offerings on the
BondDesk platform.
Maturity Date
The date when the principal
amount of a security becomes due and payable.
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.
Minimum Denomination
Dollar amount of one bond or the minimum dollar increment that can be purchased.
Minimum Denomination Quantity (Min
Denom Qty)
The minimum amount required to create an order (minimum purchase
amount).
Moody's Credit Ratings
Moody’s ratings are a measure of long term risk of each issuer’s ability to meet debt payments taking into account changes in management strategy, regulatory trends, and the next economic cycle or longer. Moody's uses a multidisciplinary or "universal" approach to risk analysis, which aims to bring an understanding of all relevant risk factors and viewpoints to every rating analysis. They rely on the judgment of a diverse group of credit risk professionals to weigh those factors in light of a variety of plausible scenarios for the issuer and thus come to a conclusion on what the rating should be.
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 (MBS)
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 from 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 collects payments on the loans in the pool and "passes
through" the principal and interest to the security holder on a pro rata basis.
A bond backed by mortgages issued by the Federal Home Loan Mortgage Corporation,
the Federal National Mortgage Association, and the Government National Mortgage
Association.
Municipal Bonds
Fixed income securities
issued by state and local governments or their agencies.
Multi Call Bond
These bonds are typically
callable only on interest payment dates.
Narrowing the Spread
Also called
"Closing the Market." The action taken by a dealer to reduce the difference
between bids and offers.
NASDAQ
A computerized system that facilitates trading and provides price quotations
on more than 5,000 of the more actively traded over the counter stocks.
Near Money
A bond that is close to its
maturity date.
Negative Convexity
When the bond’s yield curve is concave. The rate of change
of its duration measured as the second derivative of price with respect to
yield.
Negative Credit Watch
A CreditWatch listing gives a rating agency's opinion regarding the potential direction of a rating and serves notice that there has or will be a change in creditworthiness. Being the object of a negative credit watch generally indicates the credit quality of a firm's debt has deteriorated and may be downgraded.
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 bonds and notes.
Next Auction Date
Date when the next interest/dividend rate will be determined.
Next Coupon
The date the next scheduled interest payment will be issued.
Noncallable
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 instruments to pay specified amounts of money, secured by specified
sources of future revenues, such as taxes, federal and state aid payments and
bond proceeds. Generally notes are issued with a maturity date ranging from
one year to 10 years.
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.
Odd Lot
A trade made for less than the normal
trading unit for that bond.
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.
Offer is Spread
The offer retuned on an offer wanted request is spread to an underlying security.
An offer price will move in conjunction with the price movements of the underlying
security it is spread to.
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
The price (expressed in
eighths of a point) or yield (expressed in decimals) for each maturity of a
serial bond. Used primarily with municipal 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 to buy or sell 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 Issue Discount
Bond
A bond issued at a dollar price less than par that 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.
Original Issue Quantity
Original dollar amount or number of bonds of an issue.
Original Proceeds
The net amount
received by an issuer after payment of all expenses that occurred during the
issuance of the bond.
Over-the-Counter Market
Trading conducted outside an exchange.
Overnight Position
The inventory a
firm or trader holds at the end of the trading day.
Own
Limits search results to items offered by your
firm on the BondDesk ATS.
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
CMO 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. The amount the issuer is expected to pay when
the bond matures.
Parity Bonds
Two or more issues having the
same priority of claim or lien against pledged revenues.
Participation Class
The amount of leverage, usually expressed in percentage movement in the underlying
asset, that characterizes the upside return of a Structured Product. Structured
Notes
often employ some degree of leverage or Enhanced Return on the upside, frequently
combined with a cap on the return.
Participation Rate
The amount of leverage, usually expressed in percentage movement in the underlying
asset, that characterizes the upside return of a Structured Product. Structured
Notes often employ some degree of leverage or Enhanced Return on the upside,
frequently combined with a cap on the return. The following is a list of the
different types of participation:
Straight Participation - Return is based on initial and final underlying levels; does not include averaging over more than 20% of the term of the investment. Participation Rate is fixed on pricing date.
Averaging Participation - Return is based on periodic averaging for more than the final 20% of the term of the investment (tail averaging). Participation Rate is fixed on pricing date.
Variable Participation - Participation Rate is not fixed on pricing date, and is dependent on changes in the underlying.
Enhanced Participation - Positive investment return is based on change in underlying with a ratio greater than one.
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/or
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 CMO, 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 Number
A unique six-character identifying
number for every MBS pass-through (pool). Pool numbers, assigned by the issuing
agency, are the most commonly used identifier for pass-throughs. Freddie Mac
pool numbers may be specified with a hyphen between the pool prefix (the first
two characters), which identify the type of loan collateral in the pool and the
rest of the pool number (e.g., �C5-1234� or �C51234�).
Pool Type
A description of the type of loans
in an MBS pool, identifying, at least the issuing agency and original term.
Position
The status of an investor's securities in their portfolio.
Posted Since
The date offerings were put on the
BondDesk ATS system. 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 POSTED SINCE field. For example, -1d would return all offerings
added in the last day.
Preferred Stock
Stock that pays a
specific dividend before any dividends are paid to common stock holders. A
preferred stock takes precedence over common stock in the event of liquidation.
Preferred stock usually does not carry voting rights.
Premium
The amount over the par value for a
bond.
Premium Bond
A bond with a price above the
par value.
Premium Call
A provision that allows 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
The dollar amount per bond stated as a value
of $100.
Primary Market
The market for new issue securities.
Prime Rate
The lowest interest rate charged
by commercial banks to their best corporate customers.
Principal Trade
A means of compensating the broker-dealer of a bond trade solely on the basis
of a markup/markdown or spread established through purchasing and selling bonds
for their own account.
Principal Status
There are multiple levels of protection for the initial investment in a structured
product:
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 institutions or home builders.
Proceeds
The money received by a bond issuer
at the close of the issuance of new securities.
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.
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 filed with the Securities and
Exchange Commission. Municipal securities are usually also filed with the
Municipal Securities Rulemaking Board.
Put Bond
A bond that is redeemable by the
holder at his option or upon certain circumstances.
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 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.
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.
Range
A set of 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.
Record Date
The date for determining the
owner entitled to the next scheduled payment of principal or interest.
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.
Reference Ticker
The underlying asset or index the structured product is linked to. The most
popular
underlyings used are single stock, domestic and international equities indices,
commodities,
and currencies. Other underlying reference assets can be baskets of individual
shares,
indices of house prices, the prices of managed funds including hedge funds,
and a
variety of other financial assets.
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. Principal & Interest payments are made to the registered owner
on the record date.
Registrar
The party responsible for
maintaining records of the beneficial owners of a security on the behalf of a
bond issuer.
Regular Way Trade
A trade that is settled through the regular settlement cycle for that
instrument. The cycle is the time that the regulations of the secondary
market allows for the buyer to complete payment for the seller to deliver the
goods being purchased. Settlement cycles are determined by the asset
class.
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. A complex pool of mortgage securities
created to acquire collateral. A fixed pool of mortgages broken apart
and sold as individual securities.
Reset Frequency
Indicates the frequency of the interest payments.
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.
Restricted States
A field for identifying states where commercial agreements or state laws prevent
the sale of CD’s to residents of the particular state.
Retail Lottery Bonds
A CMO class, created for
retail investors, which trades with a one factor. In contrast to most tranches,
where every investors current principal balance pays down in proportion to
the tranche as a whole, individual lots of retail lottery bonds always trade
with a one factor until they are called at random.
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:
Revised Issue Price
The original
issue price plus any accrued original issue discount.
Round Lot
A unit of trading or a multiple of
that unit. Typically $100,000 is the measure of a round lot of bonds.
Rules of Fair Practice
The
regulations governing the conduct of the members of the FINRA.
S&P Credit Ratings
Standard & Poor's issues
credit rating based on 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.
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.
Scale
The coupon rates, offering prices and
yields for each maturity of a serial bond.
Secondary Market
The market in which
securities are traded after they are initially offered in the primary 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 registration of a security with the SEC and full disclosure
of accurate information about an issue.
Securities and Exchange
Commission (SEC)
A federal agency 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.
Securities Exchange Act of 1934
Federal legislation created to provide governance of securities transactions
in the secondary market and to regulate exchanges and broker dealers in order
to protect the investing public.
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 issue 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 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.
SIFMA (Securities Industry and Financial
Markets Association)
An association that represents firms in financial markets. They are committed
to enhancing the public’s trust and confidence in the markets.
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.
Single Call Bond
These bonds are only
callable at one specific future date.
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.
Spread
The difference between the bid and asked
prices for a bond.
Standard Prepayment Model
A model based on historical mortgage prepayment rates that is used to estimate
prepayment rates on mortgage securities. The model is based on the Constant
Prepayment Rate (CPR), or the amount of outstanding principal that is prepaid
in a month.
State (Municipal Bonds Only)
The state in which
the bond was issued.
Stepped Coupon
A
bond with a coupon rate that increases periodically, until it is called or
matures.
Stripped
Removing the
coupons from a bond and then selling parts separately as a zero coupon or
and interest only product.
Structured
Note
Securities derived from or based on a single security, a basket of
securities, an index, a commodity, a debt issuance and/or a foreign
currency.
Structured
Product
Securities whose cash flow characteristics depend upon
one or more indices or that have embedded forwards or options or securities
where an investor's investment return and the issuer's payment obligations
are contingent on, or highly sensitive to, changes in the value of
underlying assets, indices, interest rates or cash flows.
Subj AMT
Subject to AMT designates whether a
municipal issue will be subject to Federal Alternative Minimum Income Tax.
Subject Offerings
Indications of
offerings that are contingent on availability and / or other criteria, and
must be verified before order execution can take place.
Subordinated Securities
Securities with a promise to pay that cannot legally be fulfilled
until payments on certain other obligations have been made.
Support (Also known as Companions)
A class of
tranche found in a planned amortization class (PAC) bond that is responsible
for protecting the PAC tranche from both contraction and extension
risk. The companion bond is designed to absorb excess principal payments
during times of high prepayment speeds and defer receiving principal payments
during times of low prepayment speeds.
SuperPO
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.
Supranationals
Securities which are issued
by supranational entities such as the International Bank for Reconstruction
and Development (IBRD issues), International Finance Corporation (IFC issues),
the North American Development Bank, etc. Supranational securities are not
obligations of U.S Government agencies.
Survivor
Optional redemption feature on a
debt instrument allowing the beneficiary of the estate of the deceased to
put (sell) the bond (back to the issuer) in the event of the death or
legal incapacitation of the holder of the debt instrument. Also known as
an Estate Feature or Death Put.
Swap
The
exchange of one security for another to change the maturity, quality of
issue, or the investment objectives.
Symbol
A code representing a particular security listed on an exchange or otherwise
publicly traded.
TAC Tranche - Targeted Amortization
Class
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 A type of
credit derivative that is similar to a planned amortization class (PAC) in
that it protects investors from prepayment; however, it is structured
differently than a PAC. TACs protect investors from a rise in the prepayment
rate or a fall in interest rates. They do not protect from a fall in the
prepayment rate like PACs.
Take
Delivery
The action by which an instrument is tendered and received
by the purchaser.
Taxable Bonds
Bonds with
interest that is taxable on the federal level and possibly the state and
local level as well.
Tax Exempt
In
Indicates the state of issuance for tax-exempt offerings by
state code.
Tax Status
Indicates whether income from the bond is subject to federal, state, and/or the Alternative Minimum Tax (AMT).
T-Bill Rate
The weekly average auction rate
of the three-month Treasury bill stated as the bond equivalent yield.
Telephone Bonds
Bonds issued by companies in the
Telephone sector, which may include regional and long distance telecommunication
service providers.
Term Bond
A large municipal bond issue with
all the bonds maturing on a single date.
Term Funding
A financing done to meet
specific cash-flow needs for a specific period of time.
Territories
Commonwealth countries associated
with the US such as Puerto Rico or unincorporated territories of the US such as
Guam, who issue municipal debt.
Tight Market
A condition in the secondary
market with active trading and narrow spreads between asked and bid prices.
TIPS
Treasury Inflation Protected Securities are a special type
of Treasury note or bond that offers protection from inflation. Coupon payments
and underlying principal are automatically increased to compensate for inflation
by tracking the consumer price index (CPI).
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.
Trade Date
The official date on which a bond
transaction occurs.
Trader
A person or firm engaged in buying or
selling bonds.
Tranche
A portion of a deal or structured financing. This portion is one of several
related securities that are offered at the same time but have different risks,
rewards and maturities.
Tranche Name
The unique two-character name
of a CMO tranche. The Issuer, Deal Number, and Tranche Name uniquely identify
every CMO.
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
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
Long-term obligations of the U.S. Government backed debt. that mature in excess
of ten 10 years. Interest is paid semi-annually, and the bonds can be
purchased in minimum denominations of $1,000 or multiples thereof.
Treasury Investment Growth Receipt
(TIGR)
A US 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. They are backed by the US Government.
Treasury Notes
U.S. Government debt obligations that are available for terms of one to 10
years with a fixed interest rate. 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 fixed income securities 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.
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
An entity designated by the issuer as the
custodian of funds and official representative of bondholders.
Undated Issue
A floating-rate note with
no stated maturity date.
Underlying Asset
All structured products provide a return based on the performance of some underlying
reference asset or index. The most popular underlyings used are single stocks,
domestic
and international equity indices, commodities, and currencies. Other underlying
reference
assets can be baskets of individual shares, indices of house prices, the prices
of
managed funds including hedge funds, and a variety of other financial assets.
Underlying Rating
In the case of a
security for which credit enhancement or insurance has been obtained, the
underlying rating is assigned by a rating agency to such security without regard
to credit enhancement or assigned to other securities of the same issuer having
the same features and security structure but without the credit enhancement.
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.
Volatility
The propensity of a security's
price to rise or fall.
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)
A dollar-weighted average measuring the age of the individual loans in a mortgage
pass-through or pooled security, such as Ginnie Mae or a Freddie Mac security.
The WALA is measured as the time in months since the origination of the
loans, with the weighting based on each loan's size in proportion to the aggregate
total of the pool..
Weighted Average Maturity
(WAM)
The weighted average of the time until all maturities on mortgages in
a mortgage-backed security (MBS). The higher the weighted average to maturity,
the longer the mortgages in the security have until maturity.
Also known as "average effective maturity".
Window
In a REMIC bond, the period of time
between the expected first payment of principal and the expected last payment of
principal.
Yield
The income return on an investment expressed on an annual percentage. 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)
The yield of a bond or
note if you were to buy and hold the security until the call date. This yield
is valid only if the security is called prior to maturity. The calculation
of yield to call is based on the coupon rate, the length of time to the call
date and the market price.
Yield to Maturity (YTM)
The rate of return anticipated on a bond if it is held until the maturity date.
YTM is considered a long-term bond yield expressed as an annual rate. The calculation
of YTM takes into account the current market price, par value, coupon interest
rate and time to maturity. It is also assumed that all coupons are reinvested
at the same rate. Sometimes this is simply referred to as "yield" for
short.
Yield to Par Call
The yield of a bond or
note if you were to buy and hold the security until the call date. This yield
is valid only if the security is called prior to maturity. The calculation
of yield to call is based on the coupon rate, the length of time to the call
date and the market price.
Yield to Worst (YTW)
The most conservative yield calculation, from the investors perspective,
based upon current market pricing. The lowest of all yield calculations to
optional call dates and/or maturity.
Zero Coupon
A bond where periodic interest payments (coupon payments) are not made during
the life of the bond. Most often purchased at a discount to face value the
return of the bond (yield) is determined by the difference between the discounted
purchase price and redemption value (face value) at maturity.
Z-Tranche/ Z-Bond
A special type of bond class in
a sequential pay collateralized mortgage obligation. This class of bond
does not receive any interest or principal payments until all other tranches
have been completely paid off. In a Z-tranche, the interest that is not paid
is accrued and added to the principal for future interest calculation
purposes.
The main purpose of the Z-tranche is to speed up the maturity of the senior tranches by
disbursing payment that the Z-tranche was suppose to receive to the higher
priority tranches. Investors that possess long-term liabilities or
those who worry about reinvestment risk would benefit from investing in
a Z-tranche bond