The term 'above par' refers to a situation where a security, typically a bond, is trading at a price above its face value or par value. This can indicate a strong demand for the security and may reflect favorable market conditions or high credit quality of the issuer.
Arrearage refers to the amount of overdue payments that are owed and unpaid. This can apply to various financial obligations, including loans, mortgages, bond interests, and dividends on cumulative preferred stock.
Asset-Backed Securities (ABS) are financial instruments backed by loan paper or accounts receivable originated by banks, credit card companies, or other providers of credit, often enhanced by a bank letter of credit or by insurance coverage from a third party.
The term 'at par' refers to a financial instrument, such as a bond, that is trading at its face value. In other words, the market price of the bond is equal to its nominal or par value.
Centralized securities trading markets where securities are bought and sold in an orderly manner through security brokers. Securities, including equities, bonds, options, closed-end funds, and futures, are traded based on bid and offer prices.
An accounting term referring to a calculated measure used to compare bonds of varying durations and repayment schedules by averaging the periods for which funds are available, weighted by the amounts available in each period.
A balanced mutual fund invests in a mixture of common stock, preferred stock, and bonds to achieve the highest possible return while maintaining a low-risk strategy.
Basic financial instruments are the underlying tools used in financial operations, including currencies, bonds, stocks, and derivatives. These instruments serve as the backbone of financial transactions and investment strategies.
Below Par refers to a financial security, especially a bond, that is trading at a price lower than its face or nominal value.
A block refers to a large quantity of stock or a large dollar amount of bonds held or traded, typically defined as 10,000 shares or more of stock or $200,000 or more worth of bonds.
A bond broker is a financial professional who specializes in buying and selling bonds on behalf of clients. They execute bond trades on the floor of exchanges or trade corporate, U.S. government, or municipal debt issues over the counter, often acting for large institutional accounts.
The bond discount is the difference between a bond's current market price and its higher face value or maturity value. This phenomenon occurs when bonds are issued below par value or due to market conditions such as rising interest rates or heightened default risk.
Bond yield refers to the return an investor realizes on a bond. Various types of bond yields provide investors with insight into the return they could potentially receive if they hold the bond until maturity or sell it earlier.
Bonded debt refers to the portion of a corporation's or government's overall debt that is represented by bonds it has issued. It specifically concerns the indebtedness that is contracted under the obligation of these bonds.
A bulldog bond is an unsecured or secured bond issued in the UK domestic market by a non-UK borrower, which helps diversify investor portfolios and provides borrower access to the UK's capital markets.
A bunny bond is a specialized financial instrument that gives bondholders the option to receive interest payments or additional bonds, commonly referred to as 'coupon bonds.' This flexible feature makes bunny bonds an appealing choice for investors seeking growth through compounding interest.
A call is a financial term used in various contexts, including banking, bonds, and options, signifying the right or action to demand repayment, redeem or buy securities under specific conditions.
A call feature or call provision is part of the agreement a bond issuer makes with a buyer, detailing the schedule and price of redemptions before maturity. Most corporate and municipal bonds have ten-year call features, while government securities usually do not.
The call price is the price at which a bond or a preferred stock with a call feature can be redeemed by the issuer prior to its maturity date. It is also known as the redemption price.
A callable security can be redeemed by the issuer before its scheduled maturity date, usually triggering a necessity for extra payment to the holder, identified as a call premium.
A Capped Floating-Rate Note (Capped FRN) is a type of bond that features an interest rate that fluctuates with market levels but has an upper limit or 'cap' to protect issuers against excessive interest rate rises.
A closed period refers to a span of time, often 10 years following the issuance of a bond, during which the bond cannot be called by the issuer.
The contract interest rate, also known as the face interest rate or nominal interest rate, is the stated annual interest rate on a loan or bond, before any adjustments for compounding or inflation.
The contract rate, also known as the face interest rate, refers to the interest rate stated on a financial instrument, such as a bond or loan, which dictates the amount of interest the issuer will pay periodically to the holder.
The dollar value at which convertible bonds, debentures, or preferred stock can be converted into common stock; announced when the convertible security is initially issued.
Convertibles are corporate securities, typically preferred shares or bonds, that are exchangeable for a set number of another form, commonly common shares, at a preset price.
The effective overall rate of interest that a company pays on its loans, bonds, and other debts, used in calculating the total cost of capital for that firm. This is usually calculated as an after-tax figure.
A coupon can refer to several aspects in the context of bonds, including the dated slip attached to a bond for interest payment collection, the rate of interest paid by a bond, or a general term for certain bonds and notes in the US Treasury markets.
A bond issued with detachable coupons that need to be presented to a paying agent or the issuer to receive semiannual interest payments. These are bearer bonds, meaning the interest is payable to whoever holds the coupon.
The term 'cover' has multiple meanings in finance and corporate terms, commonly associated with buying back shorted positions, meeting fixed financial obligations, and the net-asset value supporting a security.
Current yield is the annual interest on an investment divided by its market price, providing a snapshot of the bond’s rate of return relative to its current price rather than its face value or yield to maturity.
Debt financing is the process of raising capital through borrowing, typically via the issuance of bonds. It contrasts with equity financing, where capital is raised through the sale of ownership stakes in the company (stock).
A security representing money borrowed that must be repaid, typically having a fixed amount, specific maturity, and usually a specific rate of interest or an original purchase discount.
A loan stock or government security issued on terms that make the redemption value significantly higher than the issue price, often with more than 15% discrepancy or ½% per completed year.
Defensive securities are stocks and bonds that offer greater stability and relatively safe returns, especially during market downturns.
Drop Lock is a financial mechanism applied to bonds initially issued with variable rates of interest, converting them into fixed-rate bonds upon the occurrence of a trigger event such as the underlying index or interest rate falling below a pre-set threshold.
Euroclear is a pan-European provider of clearing, settlement, and related services for bond, equity, and investment-fund transactions. Based in Brussels, it was set up in 1968 by the US bank J. P. Morgan.
Eurodollar bonds are bonds that pay interest and principal in Eurodollars, which are U.S. dollars held in banks outside the United States. These bonds are usually issued by foreign corporations or governments.
An independent expert who appraises the value of property for which there is limited trading. The role is crucial in assessing the value of unique assets, such as antiques in an estate or rarely traded stocks or bonds.
The Face Amount of a Bond represents the nominal or principal amount that the issuer agrees to pay the bondholder at maturity.
A Face Interest Rate is the percentage interest rate specified on the bond or loan document. It differs from the Effective Rate, which is a more meaningful yield figure reflecting the actual cost of borrowing.
Face value, also known as par value, denotes the nominal or stated value a particular asset maintains, such as stocks, bonds, or other types of securities. It is predominantly utilized in the fields of finance and investment to determine the fixed worth sovereignly ascribed to an instrument.
Financial assets include stocks, bonds, rights, certificates, bank balances, and other securities, distinguishing themselves from tangible, physical assets like real property.
A contract involving a financial obligation that represents a monetary asset to one party and a financial liability or equity instrument to another party. Examples include stocks, bonds, loans, and derivatives.
Financial instruments are monetary contracts between parties. They can be created, traded, modified, and settled. They may be cash (currency), a contractual right to deliver or receive cash (as expressed by a bond), or another type of instrument that conveys ownership (equity).
Financing involves the act of providing funds for business activities, making purchases, or investing. It enables companies to meet their objectives through various financial instruments like loans, investment, shares, or bonds.
Fixed-income refers to a type of investment or income stream where payments are received on a regular schedule and are typically not adjusted for inflation. Common examples include most bonds, certain annuities, and some pension funds.
Fixed-income investments are financial instruments that provide a fixed rate of return in the form of periodic interest or dividends until maturity.
Fixed-interest securities provide defined interest payments and are considered lower-risk investments. Examples include gilt-edged securities, bonds, preference shares, and debentures.
A Floating-Rate Note (FRN) is a type of debt instrument with a variable interest rate that adjusts periodically based on a benchmark interest rate, such as the LIBOR or the federal funds rate.
Flotation (Floatation) Cost refers to the expenses incurred by a company when it issues new stocks or bonds. These costs include underwriting fees, legal fees, registration fees, and other associated expenses.
Funded debt refers to debt that is due after one year and is formalized by the issuing of bonds or long-term notes. It often involves a sinking fund to ensure the debt can be retired systematically.
A fungible issue refers to a bond or security that can be interchanged with another of the same class, offering benefits such as consistent documentation and an increased market depth.
A comprehensive guide exploring the definition, examples, FAQs, related terms, references, and recommended books for understanding global bonds.
Going long refers to the practice of purchasing a stock, bond, or commodity for investment or speculation purposes. The purchased security is held with the expectation that its value will increase over time, thereby providing profits to the investor.
A fixed-interest British government debt security.
Government obligations refer to debts that a government owes to creditors, typically in the form of bonds. These obligations are crucial for funding government operations and projects.
The gross redemption yield, also known as the effective yield or yield to maturity (YTM), represents the internal rate of return of a bond bought at a specified price and held until its maturity, excluding any taxes payable on the interest and the capital repayments.
A certificate issued by a bank or brokerage firm vouching for the authenticity of a person's signature, which may be necessary when stocks, bonds, or other registered securities are transferred from a seller to a buyer.
A housing bond is a short- or long-term bond issued by a local housing authority to finance short-term construction of low- or middle-income housing or long-term commitments for housing, plants, pollution control facilities, or similar projects.
A Housing Finance Agency (HFA) is a governmental (state or local) organization designed to provide housing assistance, often through tax-free bonds and low-interest mortgage loans for eligible borrowers.
Ibbotson & Associates is a prominent provider of historical data for various financial investments, renowned for its annual publication 'Stocks, Bonds, Bills & Inflation.' This publication offers critical insights into long-term historical performance across various investment classes.
An indenture is a formal agreement, also known as a deed of trust, between an issuer of bonds and the bondholder which outlines key considerations such as the form of bond, amount of issue, property pledged, protective covenants, working capital requirements, and redemption rights.
Inflation-Indexed Securities are bonds or notes that guarantee a return exceeding inflation if held to maturity. These instruments include Treasury Inflation-Protected Securities (TIPS) and mutual funds owning such securities.
In accounting and finance, an instrument refers to any document or financial asset that represents some form of value, usually a legal document that records a right to pay a sum of money or property. Common examples include promissory notes, checks, bonds, and other financial securities.
Intangible property represents possessions that hold real value but do not have a physical presence. Examples include stock certificates, bonds, promissory notes, and franchises.
Investment refers to the purchase of assets such as stocks, bonds, mutual fund shares, real property, collectibles, or annuities, with the expectation of obtaining income, capital gain, or both in the future. Investment tends to be longer term and less risky than speculation.
An investment portfolio is a collection of various assets such as stocks, bonds, real estate, and other investment instruments owned by an individual or an organization to achieve financial goals.
Investment-Grade describes bonds suitable for purchase by prudent investors. Standard & Poor's (S&P) designates the bonds in its four top categories (AAA down to BBB) as investment-grade.
A legal entity that has the power to issue and distribute securities. Issuers include corporations, municipalities, foreign and domestic governments and their agencies, and investment trusts. They are responsible for corporate reporting, paying dividends, and servicing debt.
Justified price refers to the fair market price that an informed buyer is willing to pay for an asset, whether it be in the form of stocks, bonds, commodities, or real estate.
Kangaroo Bonds are bonds denominated in Australian dollars and issued in Australia by foreign firms, used to attract Australian investors while diversifying funding sources.
Loan stock is a type of fixed-income security that represents borrowed funds, usually in the form of bonds or debentures, which companies issue to raise capital on which interest is paid until the maturity or redemption date.
A long bond is a bond that matures in more than 10 years. These bonds are riskier than shorter-term bonds of the same quality but normally pay investors a higher yield.
In finance, a long coupon refers to the first interest payment of a bond issue, which covers a longer period than the subsequent payments or an interest-bearing bond maturing in more than 10 years.
Long-term debt, also known as long-term liability, refers to loans and financial obligations that are due in more than a year. These obligations often include bonds and notes payable, with periodic interest payments and the principal due upon maturity.
The specific day when a financial obligation, such as a bond, bill of exchange, or insurance policy, comes due for payment, marking the end of its term.
A Medium-Term Note (MTN) is a type of debt security that generally matures in five to ten years, offering issuers flexible financing and investors a range of maturities and interest rate structures.
A bond issued by a state or local government body such as a county, city, town, or municipal authority. Typically, the interest earned on municipal bonds is generally not taxable by the U.S. government, nor in the jurisdiction that issued it.
A Municipal Revenue Bond is a type of bond issued by municipalities to finance public works projects such as bridges, tunnels, or sewer systems. The principal and interest payments are supported directly by the revenues generated from the project.
Muqarada is an Islamic financial instrument that serves as an alternative to conventional bonds. It aligns with Sharia principles, offering a profit-sharing investment model.
A mutual fund is a type of regulated investment company that pools money from shareholders to invest in a diversified portfolio of stocks, bonds, and other securities.
Net Change refers to the difference between the closing price of a stock, bond, commodity, or mutual fund from one trading day to the next. It is a crucial metric for investors to gauge the daily performance of an asset.
A new issue refers to a stock or bond being offered to the public for the first time, the distribution of which is covered by Securities and Exchange Commission (SEC) rules. It usually pertains to initial public offerings (IPOs) by previously private companies but can also include additional stock or bond issues by companies that are already public.
New money refers to the additional long-term financing provided to a company or government through new issues or issues exceeding the amount of a maturing issue or by issues that are being refunded.
Nominal value refers to the face value of a security as stated by the issuer, often used interchangeably with 'par value.' It represents the value printed on the instrument, such as a bond or share certificate.
The annual dollar amount of income received from a fixed-income security divided by the par value of the security and stated as a percentage.
Noncallable refers to a type of preferred stock or bond that cannot be redeemed at the option of the issuer. These financial instruments provide call protection for a certain period, ensuring stability for the investor.
An obligor is a person or entity that has a legal or contractual obligation to another party. This term is often used in legal and financial contexts, particularly in relation to bonds, loans, and other forms of debt.
An odd lot in securities trading refers to a block of stocks or bonds that is fewer than 100 shares. This is considered a non-standard trading size and can sometimes incur different types of handling fees or treatment by brokers.
A series of equal or nearly equal payments made at the end of each equally spaced period. An ordinary annuity is commonly used in financial products like mortgages, leases, bonds, and retirement accounts.
Original Issue Discount (OID) refers to the discount from par value at the time a bond or debt instrument is issued. It plays a crucial role in the bond market, particularly in zero coupon bonds, and involves complex tax treatments.
Original maturity refers to the interval between the issue date and the maturity date of a bond, distinct from current maturity, which measures the remaining time from the present to the maturity date.
The OTC Market (Over-the-Counter Market) is a decentralized market where trading of financial instruments such as stocks, bonds, commodities, and derivatives occurs directly between two parties without a central exchange or broker.
Equal to the established value; face amount or stated value of a negotiable instrument, stock, or bond, and not the actual value it would receive on the open market. Bills of exchange, stocks, and similar instruments are at par when they sell for their stated value.
Par value, also known as face value or nominal value, is the minimum price at which shares or other securities are issued and can be redeemed. The par value is typically set by the company at the time of issuance and does not fluctuate.
A placed deal is a financial transaction in which a bank or a group of banks commit to marketing an entire new issue of bonds or similar securities without guaranteeing the success of the issuance.
A premium bond is a type of bond that sells for more than its face or redemption value. For example, if a bond with a face value of $1,000 sells for $1,050, it is considered a premium bond. The premium can be amortized on a straight-line basis over the life of the bond for tax purposes.
Primary distribution refers to the sale of a new issue of stocks or bonds, distinguishing it from secondary distribution, which involves previously issued stock. All issuances of bonds are primary distributions, and it is also known as a primary offering. It should not be confused with an initial public offering (IPO), which is a corporation's first distribution of stock to the public.
The principal amount is the face value of a financial obligation such as a bond or a loan that is required to be repaid at its maturity date, distinct from the interest accrued.
