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BOND
Accrual bond
• A bond on which interest accrues, but is not paid to the investor during the time of
accrual. The amount of accrued interest is added to the remaining principal of the
bond and is paid at maturity.
Baby bonds
• Are bonds which have denominations less than $1,000 per bond.
Bearer bond
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• Is a security which does not have the owner's name on the certificate. Interest and
principal are paid to the person presenting the attached coupons to the agents for
payment. This type of ownership compares to registered or book entry form.
• Bonds that are not registered on the books of the issuer. Such bonds are held in
physical form by the owner, who receives interest payments by physically detaching
coupons from the bond certificate and delivering them to the paying agent.
Bond
• Long-term debt instrument used by business and government to raise large sums
of money, generally from a diverse group of lenders. In the case of business bond
issuers, a specific asset or assets are pledged as collateral.
• Bonds are debt and are issued for a period of more than one year. The U.S.
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government, local governments, water districts, companies and many other types of
institutions sell bonds. When an investor buys bonds, he or she is lending money.
The seller of the bond agrees to repay the principal amount of the loan at a specified
time. Interest-bearing bonds pay interest periodically.
Bond agreement
Bond covenant
• Is the procedure which relates discounted rates such as treasury bills and
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• Bond yield calculated on an annual percentage rate method. Differs from annual
effective yield.
Bond fund
• Are mutual funds that invest in credit instruments. There can be distinctions, such
as, treasury, international, sovereign, mortgage backed, investment grade corporate
and high yield or junk bonds.
Bond indenture
• A complex and lengthy legal document stating the conditions under which a bond
has been issued.
• The contract that sets forth the promises of a corporate bond issuer and the rights
of investors.
Bond indexing
• Designing a portfolio so that its performance will match the performance of some
bond index.
Bond points
• A conventional unit of measure for bond prices set at $10 and equivalent to 1% of
the $100 face value of the bond. A price of 80 means that the bond is selling at 80%
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Bond quote
• One of a number of quotations listed in the financial press and most daily
newspapers that provide representative bid prices from the previous day's bond
market. Quotes for corporate and government bonds are percentages of the bond's
face value (usually $1,000). Corporate bonds are quoted in increments of 1/8th,
where a quote of 99 1/8 represents 99.125% of par ($1,000), or $991.25.
Government bonds are quoted in 1/32nds. Municipal Bonds may be quoted on a
Bond rating
• Denotes the safety of the bonds. Probability of default generally increases as the
bond ratings decline. Bottom falls out as we go to below investment grade bonds.
The highest bond rating is AAA followed by AA, A, and BBB. The lowest investment
quality bond rating is BBB. All ratings below BBB are junk bonds. These are BB, B,
and CCC. D denotes bonds that have already defaulted.
• The decision facing firms, when bond interest rates drop, whether to refund
(refinance) existing bonds with new bonds at the lower interest rate.
Bond value
• With respect to convertible bonds, the value the security would have if it were not
convertible apart from the conversion option.
Bondpar
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Brady bonds
• These are issued in conjunction with defaulted Latin American sovereign debt.
• Bond whose principal repayment is linked to the price of another security. The
bonds are issued in two tranches: in the first tranche repayment increases with the
price of the other security, and in the second tranche repayment decreases with the
price of the other security.
Bulldog bond
• The stated price at which a bond may be repurchased, by use of a call feature,
prior to maturity.
Callable bond
• A bond that can be redeemed by the issuer prior to its Maturity. Usually a premium
is paid to the bond owner when the bond is called.
• A bond that the issuer has the right to redeem prior to maturity by paying some
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Century bonds
• A bond in which the issuer (often a holding company) grants investors a lien on
stocks, notes, bonds, or other financial asset as security. Compare mortgage bond.
Completion bonding
• These two groups may have interests in a corporation that conflict. Sources of
conflict include dividends, distortion of investment, and underinvestment. Protective
covenants work to resolve these conflicts.
Convertible bond
• Bonds that can be converted into common stock at the option of the holder.
takeovers or call options in favor of the issuer. Generally, convertible bonds are
coupons paying but there are zero coupon convertible bonds as well. These bonds
tend to have lower-than-market rates of interest in exchange for a potential equity
stake for the bondholder.
• A bond that can be changed into a specified number of common shares at the
option of the bondholder.
Convertible eurobond
• A eurobond that can be converted into another asset, often through exercise of
Corporate bond
• This is the public debt (IOU) of corporations. Instead of taking a bank loan,
corporations can directly borrow from institutions or individuals by selling them
bonds. They pay interest with coupons attached to the bonds. They usually have
long lives such as 20 or 30 years. They come in denominations of $l,000 and pay
interest every 6 months.
• A Debt Security issued by a corporation. A corporate bond typically has a par value
of $1,000, is taxable, has a term maturity, and is traded on a major exchange.
Corporate bonds
Intermediate Corporates,
Distressed Securities,
Junk Bonds,
Long Industrials,
• Utilities. There are other categories and subcategories, such as, financials -bank
and nonbank, foreign, Canadian, Yankee and the list goes on.
Cushion bonds
• High-coupon bonds that sell at only at a moderate premium because they are
callable at a price below that at which a comparable non-callable bond would sell.
Cushion bonds offer considerable downside protection in a falling market.
• High-coupon bonds that sell at only a moderate premium because they are callable
at a price below that at which a comparable noncallable bond would sell. Cushion
bonds offer considerable downside protection in a falling market.
Debenture bond
• An unsecured bond whose holder has the claim of a general creditor on all assets
of the issuer not pledged specifically to secure other debt. Compare subordinated
debenture bond, and collateral trust bonds.
• A bond issued with a very low coupon or no coupon and selling at a price far below
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par value. When the bond has no coupon, it's called a zero coupon bond.
• A bond that has a Coupon Rate far below rates currently available on investments
and whose value is at a significant discount from Par Value.
Discount bond
• Debt sold for less than its principal value. If a discount bond pays no interest, it is
called a zero coupon bond.
Dollar bonds
• Municipal revenue bonds for which quotes are given in dollar prices. Not to be
confused with "U.S. Dollar" bonds, a common term of reference in the Eurobond
market.
• Municipal revenue bonds for which quotes are given in dollar prices. Not to be
confused with U.S. Dollar bonds, a common term of reference in the Eurobond
market.
Eurobond
• Bonds issued in Europe outside the confines of any national capital market. A
Eurobond may or may not be denominated in the currency of the issuer.
Eurodollar bonds
Euroyen bonds
Extendable bond
• Bond whose maturity can be extended at the option of the lender or issuer.
• Bonds with short terms to maturity, typically 1 to 5 years, that can be renewed for a
similar period at the option of the holders.
• The value that appears on the face of a bond that indicates the bond s value at its
maturity date.
Fidelity bond
• bonds where the stated interest rate is adjusted periodically within stated limits in
response to changes in specified money or capital market rates. See Table 6.4.
Flower bond
• Government bonds that are acceptable at par in payment of federal estate taxes
when owned by the decedent at the time of death.
Flower bonds
• Government bonds that are acceptable at par in payment of federal estate taxes
Foreign bond
• A bond issued in a host country's financial market, in the host country's currency,
by a foreign borrower. An international bond that is sold primarily in the country of
the currency of the issue.
• That portion of the domestic bond market that represents issues floated by foreign
companies to governments.
• A bond with a coupon equal to the going market rate and consequently selling at or
near par.
• A bond with a coupon equal to the going market rate, thereby, the bond is selling at
par.
• Abbreviated GO. A municipal bond backed by the full faith, credit, and taxing power
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of the issuing unit rather than the revenue from a given project.
• Municipal securities secured by the issuer's pledge of its full faith, credit, and taxing
power.
• Municipal securities secured by the issuer's pledge of its full faith, credit, and taxing
power.
• Are securities issued by municipalities. The source of revenue to pay the interest
and principal is taxes. These securities are also known as full faith and credit issues
because they depend on the municipality's capacity to tax. These issues are often
Global bonds
• Bonds that are designed so as to qualify for immediate trading in any domestic
capital market and in the Euromarket.
Government bond
• See:junk bond.
Hurricane bonds
Income bond
bonds are commonly used during the reorganization of a failed or failing business.
Income bonds
• Bonds that pay interest only when earnings are available. See Table 6.4.
• Refer to securities which promise to repay the principal when due. However, these
bonds differ from other bonds in that they promise to pay interest only when it is
earned. This type of bond is verisimilar to many kinds of preferred stock. However,
an advantage can be the tax deductibility of the interest charge when paid versus a
preferred dividend payment. These bonds are sometimes known as Adjustment
Indenture of a bond
• A legal statement spelling out the obligations of the bond issuer and the rights of
the bondholder.
Indexed bond
• Bond whose payments are linked to an index, e.g. the consumer price index.
• A U.S. government security that increases the payments of interest and principal in
proportion to the Consumer Price Index (CPI).
Insured bond
• A municipal bond backed both by the credit of the municipal issuer and by
commercial insurance policies.
• Are investment grade notes and bonds issued by corporations. The maturities
range between 1 to 10 years. These securities encompass banks, other financial
institutions, and industrial issuers.
International bond
• A bond that is initially sold outside the country of the borrower and often distributed
in several countries.
International bonds
• A bond that is assigned a rating in the top four categories by commercial credit
rating companies. For example, S&P classifies investment grade bonds as BBB or
higher, and Moodys' classifies investment grade bonds as Ba or higher. Related:
High-yield bond.
Jump bond
• Are issues which are conditioned on an event or series of events. When the event -
such as breaking a prepayment collar -occurs, it triggers a predetermined movement
to another payment arrangement. This type of bond occurs in collateralized
obligation structures.
Junk bond
• long-term secured debt securities that are rated double BB or less. Bonds that are
not investment quality. Investment quality bonds are BBB or greater.
• Bond purchased for speculative purposes. They are usually rated BB and lower,
and they have a higher default risk.
Junk bonds
• Refer to non-investment grade debt securities. Sometimes, these issues are called
high yield securities. These securities have credit ratings below Baa/BBB-.
Long bonds
• Bonds with a long current maturity. The long bond is the 30-year U.S. government
bond.
Mismatch bond
• Floating rate note whose interest rate is reset at more frequent intervals than the
rollover period (e.g. a note whose payments are set quarterly on the basis of the
one-year interest rate).
Mortgage bond
• A bond in which the issuer has granted the bondholders a lien against the pledged
assets. Collateral trust bonds
Municipal bond
• State or local governments offer muni bonds or municipals, as they are called, to
pay for special projects such as highways or sewers. The interest that investors
receive is exempt from some income taxes.
• A Mutual Fund that invests in Municipal Bonds and operates either as a unit
investment trust or as an open-end fund. The fund's objective is to maximize
federally tax-exempt income.
Par bond
• Is the principal amount of the loan. While bonds were typically issued in $1,000
denominations, the prices were quoted in percents of that denominations. For
example, a bond priced at 105 meant $1,050.
• A bond that gives the issuer an option (during an initial period) either to make
coupon payments in cash or in the form of additional bonds.
Performance bond
• A bond covenant that specifies certain actions the firm must take. Also called and
affirmative covenant.
Premium bond
• Is the amount of price above par for Mortgage Backed Securities, Corporate
Bonds, and Treasury Bonds. For convertibles, it is the amount that the convertible
security is trading over the converted out value of the underlying instrument.
Prerefunded bond
• Refunded bond.
• These bonds are issued in conjunction with defaulted Latin American Sovereign
debt. The U.S. Government has issued Treasury bonds to collateralize (guarantee)
the principal value of these bonds.
• A bond that will make only one payment of principal and interest. Also called a
zero-coupon bond or a single-payment bond.
Put bond
• A bond that the holder may choose either to exchange for par value at some date
or to extend for a given number of years.
• Abbreviated RRB. Bonds that adjust the semi-annual coupon payments and the
par value for inflation.
Refunded bond
• Also called a prerefunded bond, one that originally may have been issued as a
general obligation or revenue bond but that is now secured by an escrow fund
consisting entirely of direct U.S. government obligations that are sufficient for paying
the bondholders.
Registered bond
• A bond whose issuer records ownership and interest payments. Differs from a
bearer bond which is traded without record of ownership and whose possession is
the only evidence of ownership.
Retractable bonds
• Bonds that give the bondholder the option to sell the bond back to the issuing
company at par ($1,000) either on a specific date, and every 1 to 5 years thereafter,
or if the firm is acquired, acquires another company, or issues a large amount of
additional debt. Usually carries a lower yield than non-retractable debt of the same
quality.
Revenue bond
• A municipal bond secured by revenue from tolls, user charges, or rents derived
from the facility financed.
• A municipal bond supported by the revenue from a specific project, such as a toll
road, bridge, or municipal coliseum.
• Are debt securities which have a defined source of anticipated funds to pay both
the principal and the interest. These funds come from an activity, project, or revenue
source which is not related to a municipality's capacity to enact taxes. These bonds
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are sometimes viewed as more risky than General Obligation (GOs) Bonds.
Samurai bond
Serial bonds
• Is an issuance of bonds which have different maturity dates for the principal. Often
these bonds are issued ona year-by-year basis but there can be maturity gaps as
well.
Series bond
• Bond that may be issued in several series under the same indenture.
Series ee bond
Series hh bond
Shogun bond
Short bonds
• A bond that will make only one payment of principal and interest.
Step up bond
• A bond that pays a lower coupon rate for an initial period which then increases to a
higher coupon rate. Related:Deferred-interest bond, Payment-in-kind bond
• Are combinations which are analogous to Balanced Mutual Funds but, depending
on the underlying charter, can use higher degrees of leverage or derivatives.
Straight bond
• The price at which a convertible bond would sell in the market without the
conversion feature.
• A method of bond indexing that divides the index into cells, each cell representing
a different characteristic, and that buys bonds to match those characteristics.
Stripped bond
• A financial security derived from an ordinary bond by an investment dealer who, for
• An unsecured bond issued only by creditworthy firms. The lenders' claims are the
same as those of any general creditor, hence are subordinated to other debenture
holders and any bond issues that may be outstanding.
• An unsecured bond that ranks after secured debt, after debenture bonds, and often
after some general creditors in its claim on assets and earnings. Related: Debenture
bond, mortgage bond, collateral trust bonds.
Support bonds
• Are a class of securities that absorb many of the risks of the Planned Amortization
Class structure.
Sushi bond
T bond
Term bond
• Is a newly issued municipal bond with one stated maturity. This compares to Serial
Treasury bond
• All securities issued with initial maturities greater than ten years are called
Treasury Bonds (T-bonds). Like Treasury Notes, they pay interest semi-annually.
• Are government obligations with more than 1 year to maturity. Notes have
maturities between one and 10 years while the bonds have maturities between 10
years and 30 years. These pay interest semi-annually.
• Debt obligations of the U.S. Treasury that have maturities of 10 years or more.
• Floating rate bond that can be sold back periodically to the issuer.
Yankee bond
• A foreign bond issued in the U.S. market, payable in dollars, and registered with
the SEC.
• Foreign bonds denominated in US$ issued in the United States by foreign banks
and corporations. These bonds are usually registered with the SEC. For example,
Z bond
Z or accrual bond
• Is a security which has accretion characteristics. Its balance grows much in the
sense of a zero coupon bond, however it is subject to prepayments or other events.
• A corporate or municipal debt security traded at a deep discount from face value.
The bond pays no interest; rather, it may be redeemed at maturity for its full face
value. It may be issued at a discount, or it may be stripped of its coupons and
repackaged.
• A bond in which no periodic coupon is paid over the life of the contract. Instead,
both the principal and the interest are paid at the maturity date.
• Such a debt security pays an investor no interest. It is sold at a discount to its face
price and matures in one year or longer.
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• Is a security which the interest and/or principal has been discounted to be offered
at less than the stipulated principal or coupon amount due at maturity or early option
payment. These securities effectively behave like treasury bills or other paper
offered at an original discount. Zero coupon bonds can have conversion factors and
other features implicitly embedded or explicitly stated.
• Bonds issued with no (zero) or very low coupon rates and sold at a large discount
from par. Canada Customs and Revenue Agency (CCRA) deems the apparent