GLOSSARY
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
A method of adjusting a taxpayer's cost basis of a bond bought at an original issue discount. (OID) The annual accretion is treated as interest for tax purposes.
ACCRUED INTEREST
The interest earned on a bond from the date of issuance, or from the date of the last coupon payment made by the paying agent. The buyer of a bond pays the market price plus its accrued interest, which is payable to the seller of the security.
AD VALOREM TAX
A tax levied by state and local governments that is based on the assessed value of real property.
ALTERNATIVE MINIMUM TAX (AMT)
An alternate method of calculating income under the Internal Revenue Code. Interest earned on certain private activity bonds issued after August 7, 1986 is used in determining a bondholders tax liabilities.
ASCENDING (POSITIVE) YIELD CURVE
The structure of an interest rate curve that occurs when long(er) term rates uniformly exceed short(er ) term rates.
One one- hundredth of one percent, (.001).The basis point is the smallest unit of yield quotation used in describing a bond’s return.
BEARER BOND
A bond presumed to be owned by its holder, who collects interest by presenting one of the detachable interest coupons to the agent’s issuer or bank.
BOND
An instrument of debt issued by a corporation or government entity to raise capital. Bonds are interest bearing and promise to pay the holder a specified sum of money at maturity plus interest on the principal face amount at given intervals.
BOND COUNSEL
A lawyer or law firm that delivers a legal opinion detailing the issuers’ authorization and compliance with legal requirements for bond issuance. With respect to municipal bonds the bond counsel renders the important opinion that affirms the tax exempt nature of the financing.
BOND INSURANCE
A legal and binding commitment by an insurance company that guarantees the timely payment of scheduled principal and interest in the event of a default by the issuer.
BOOK ENTRY
A method of registering and transferring ownership of a bond electronically that eliminates the need for the physical transfer of securities
CALL/CALLDATE/CALL
PRICE/CALL PREMIUM
A call is the action taken by the issuer to pay the principal amount of the bond outstanding on a date prior to the stated maturity; this can only occur on the call date(s) as fully stated in the official statement that describes all pertinent features of the security. This redemption occurs at the call price of par or at a stated premium to par.
COMPOUND ACCRETED VALUE
The value of a zero coupon bond at a given point in time, based on its principal with the interest payments due compounded over time at the original yield of the security at issuance.
CONFIRMATION
A written document confirming a verbal agreement that provides pertinent and necessary information to buyer and seller regarding the details of the securities and the terms of the transaction.
COUPON
The annual rate of interest to be paid on a bond, most often paid in semi-annual installments and expressed as a percentage of par
CREDIT ENHANCEMENT
The inclusion of the credit strength of an insurance company, bank letter of credit or governmental guaranty in order to further enhance or strengthen the credit profile of an issuer.
CURRENT YIELD
The ratio of the interest (coupon , expressed as a % of par) to the actual market price of the bond; calculated by dividing the annual income by the market price, or alternatively, dividing the coupon by the $ price of the security. E.G. a bond with a 7 1/2 coupon at a dollar price of $105 would have a current yield of 7.14%.
CUSIP
Committee on Uniform Securities Identification Procedures; assigns the nine digit alphanumeric code to securities for identification purposes.
DATED DATE
The date from which interest begins accruing on a newly issued bond.
DEBENTURE
An obligation secured by the general credit of the issuer rather than being backed by a specific lien on property or revenue stream.
DEBT SERVICE
A series of payments comprised of principal and interest that are calculated to extinguish a debt over a specified period of time.
DEFAULT
Failure of the issuer or guarantor to pay principal or interest promptly when due
DTC
Depository Trust Company; A central securities certificate depository through which members effect security deliveries among one another via computerized bookkeeping entries.
DISCOUNT
Bonds which sell or are valued by the market at a price below par.
DURATION
The measure, expressed in years, that reflects the weighted maturity of a fixed income investment’s cash flows. Duration is used in determining the sensitivity of a bonds price performance with respect to changes in the interest rate environment.
A redemption provision that occurs under an unusual circumstance such as a natural disaster, the destruction or condemnation of the facility that has been financed, or a change in the tax code.
The par value of a bond that appears on the face of the instrument, representing the amount that the issuer promises to repay at maturity; also, the amount on which the annual interest due is computed.
FEDERAL FUNDS RATE
Market rate charged between banks for overnight loans of reserve amounts held at the Federal Reserve Bank.
A municipal bond backed by “the full faith, credit, and taxing power” of the issuing municipality.
Bonds covered by an insurance policy that guarantees principal and interest in the event of a default by the issuer. Major insurers that provide a triple AAA rating to a security include AMBAC, FGIC, FSA, and MBIA.
INTEREST
Amount charged to a borrower by a lender for the use of the money, normally expressed as an annual percentage rate.
INVERTED OR NEGATIVE YIELD CURVE
The structure of interest rates that occurs when short term rates exceed long term rates
INVESTMENT GRADE
Bonds currently rated in the top four categories by Moody’s (Baa3 or higher) or by Standard and Poor (BBB- or higher).
ISSUE DATE
The date on which the security is created or originated.
ISSUER
A state, agency, municipality, political authority, corporation that issues debt through the sale of bonds or notes.
An opinion rendered by a bond counsel that confirms the procedural conformity of the issuance, the issuer’s statutory authority, and in the case of municipal bonds the exemption of interest from federal taxation.
LETTER OF CREDIT
A bank or other fiduciary source’s commitment that guarantees the payment of principal and interest.
MUNICIPAL SECURITIES
PRINCIPAL
A municipal securities principal, operating under MSRB guidelines, who has supervisory capacity and responsibility over the municipal securities operations of the firm.
MSRB (Municipal Securities
Rulemaking
Board)
An independent self-regulatory organization in charge of overseeing and governing dealers, dealer banks and brokers participating in municipal securities.
NASD (National Association
of Securities
Dealers)
The largest self-regulatory organization of the securities industry.
Nominal Yield
The stated interest rate that a bond pays to the holder. Also known as the coupon.
Non-callable
A bond that cannot be called for early redemption at the option of the issuer prior to its state maturity date.
Notes
Short term debt instruments such as Bond Anticipation Notes (BAN) or Tax Anticipation Notes (TAN).
A disclosure statement prepared for a new municipal bond issue. The document discloses security features including economic, financial and legal information about the issue.
Optional redemption
A right to redeem all or part of an issue prior to maturity at the option of the issuer, and usually requires a premium to be paid for the exercise of this option.
Original Issue Discount (OID)
The discount from par at which a new bond issue comes to the market.
A bond selling at par.
Par
The principal or face value of a bond maturity; 100%.
Paying Agent
The agent, usually a commercial bank, responsible for making principal and interest payments on a security.
Premium
The amount by which the price exceeds the par amount or maturity value of a bond; a dollar price greater than par.
Principal
The face or pay value of the debt instrument, exclusive of accrued interest and payable at maturity.
An alpha and/or numeric scale that provides the credit risk and quality of an issue.
Redemption
The repayment of principal on a debt instrument, usually at the issuer’s option and prior to the state final maturity.
Refunding
A redemption occurring immediately
Registered Bond
A bond where the name of the owner is recorded on the books of the issuer and can be transferred only with the endorsement of the registered owner.
The portion a bond issue that is divided into a series of sequential maturities which mature in relatively small amounts at stated periodic intervals.
Settlement Date
The date for payment and delivery of securities. Sinking Fund Money, either cash or an acceptable substitute, regularly set aside by the obligator at stated intervals to redeem all or part of its long-term debt as specified in the indenture. The creation of a sinking fund provides for an orderly amortization of a debt over the life of an issue.
Swap
The sale of a block of bonds for the purchase of another block of similar market value for the purpose of establishing a tax loss, upgrading credit quality, extending or shortening maturity, etc.
A municipal bond whose interest is not excluded from the gross income of its owners for federal income tax purposes. A municipal bond is taxable because the use of the proceeds is not deemed beneficial to the public at large, and usually represents private activity financing.
Treasuries
Debt obligations of the U.S. government, secured by its full faith and credit and issued at various schedules and maturities.
Taxable Equivalent Yield
The yield an investor would have to obtain on a taxable corporate or U.S. treasury bond to match the same after-tax yield on a municipal bond.
Term Bond
Bonds from an issue that have a single stated maturity date.
Total Return
Performance of an investment measured over a stated period of time taking into account coupon interest, interest on interest, any realized and unrealized gains or losses.
Trustee
A bank assigned by the issuer as the custodian of funds and official representative of bondholders.
A Bond secured by the pledge of taxes that are not limited by rate or amount.
Unsecured Bond
A bond which is not backed by any pledge of assets that the debt will be paid.
Upgrade
The improvement of a rating by a rating agency to a higher (more credit worthy) designation.
The rate of return to the investor earned from payments of principal and interest, presuming that the security is redeemed on a specified call date.
Yield to Maturity
The rate of return to the investor earned from payments of principal and interest, presuming that the security remains outstanding and is repaid in full.
Yield to Worst
The lowest yield generated, given the potential stated calls prior to maturity are exercised.
Security that makes no interest payments, but is issued at a substantial discount from its face value At maturity, the investor receives a lump sum payment of 100% of par value reflecting the original principal invested plus the interest earned through semiannual compounding of the original interest rate to maturity.
