Glossary frame [PDF]

# 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 Accreted Value The current value of your zero coupon municipal bond, taking into account interest that has been accumulating and automatically reinvested in the bond. 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 settlement date. The accrued interest, added to the instrument's dollar price, constitutes the net amount, net proceeds or invoice amount. Active Tranche A REMIC 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 objective, published interest rate index. Advance Refunding A financing structure under which new bonds are issued to repay an outstanding bond issue prior to its first call date. General, 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 old issue, usually on the first call date. Aftermarket Also called Secondary Market. A market for a security either over the counter or on an exchange after the initial public offering. Agency Bonds Agency Bonds include securities issued by U.S. Government entities [federal agencies] or privately owned entities sponsored by the government [federally sponsored agencies]. These agencies were created to help important sectors of the economy reduce their borrowing costs. Students and homeowners are some of the people who benefit from these agencies. Proceeds from the offering are lent to a bank and the bank then lends the money to the individual seeking financing [i.e., student or homeowner]. Federally sponsored agency securities are not backed by the U.S. Government, but the fact that the agency was sponsored by the government creates the assumption that federal government would not let the agency go into default. Examples of federally sponsored agencies:Federal Farm Credit Banks [FFCB]Federal National Mortgage Association [FNMA or \"Fannie Mae\"]Federal Home Loan Banks [FHLB]Federal Home Loan Mortgage Corporation [FHLMC or \"Freddie Mac\"]Student Loan Marketing Association [SLMA or \"Sallie Mae\"] Agency Trade A trade in which the broker/dealer acts as an agent, meaning that the broker/dealer will disclose any markup/markdown in the transaction. Agents are not owners of nor do they have control of the securities. Alternative Minimum Tax An income tax levied to make certain that taxpayers with a large number of deductions, credits, and exemptions do not escape all tax liabilities. Municipal bonds that have been deemed non-essential to the public as a whole (usually airport or housing revenue bonds) which may be subject to taxation if certain tax considerations are met by the investor. These certain tax considerations vary for each investor. Please check with your tax advisor to determine if you are subject to the AMT. 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 This is the effective annual rate of return taking into account the affect of compounding interest. You can calculate it by taking one plus the periodic rate and raising it to the number of periods in a year. Arbitrage The simultaneous sale and purchase of the same or equal 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 sealed-bid public sale of Treasury securities; method of determining the rate or yield. Average Life The weighted average time to principal repayment for a mortgage pass-through, UIT or CMO security. Away From Me When a market maker does not initiate the quotation, trade or market in a 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. These bonds are primarily issued by local governments to give moderate-income investors a way to purchase small-denomination tax-exempt bonds. Back Office Terminology of the securities market that refers to the firm's cashier and clearing operations including the accounting and compliance departments. Backing Away A refusal by an over-the-counter market maker to honor the quoted bid or asked price for a minimum lot of bonds. This practice is outlawed by the National Association of Securities Dealers Rules of Fair Practice. Balloon A large principal repayment in the later years of some serial bonds. Bank Qualified Bonds Bonds that banks and trust departments can hold in their portfolios. These bonds are usually rated investment grade or higher. The issuer is limited to no more than 10 million dollars per year of outstanding indebtedness. Basis Point One one-hundredth of a percentage point. This is the most common measure of changes in bond yields. For example, if a bond yielding 6.15% changes in price to yield 6.09%, it is said to have decreased 6 basis points. Bear Market A prolonged period of time in which the prices for bonds are decreasing. Bearer Bonds Bonds that do not have the owner's name registered on the books of the issuing corporation or government and are payable to the bearer. No municipal bonds offering tax-exempt interest have been sold as bearer bonds since July 1, 1983. Bellwether In the bond market, the most recently issued long-term Treasury bond. This bond is usually considered to be a measure of the direction and magnitude of price changes in the bond market. Benchmark and Reference Notes Large ($2 to $4 billion minimum size) debt tranches issued by Fannie Mae and Freddie Mac, respectively, in a non-scheduled but regular pattern of maturity and size meant to establish a yield curve framework for the government and GSE marketplace. Beneficial Owner One who benefits from owning a security, even if the security's title of ownership is in the name of a broker or bank (\"street name\"). Bid Wanted (BW) Announcement that a holder of securities wants to sell and will entertain bids. Because the final price is subject to negotiations, the bid submitted in response to a BW need not be specific. A BW is frequently seen on published market quotation sheets. Bill A short-term direct obligation of the U.S. Treasury that has a maturity of not more than one year (for example, 12-, 26- or 52-week maturity). Blended Yield to Maturity The combination and average of two points on the yield curve to find a yield at the midpoint. Blue-Sky Laws State antifraud securities laws regarding registration and procedural requirements. These laws are designed to stop the sale of securities with no value. Bond A security representing long-term debt issued by governments or corporations. The security may be in bearer, book-entry or registered form. The issuer pays interest on the bonds on specified dates and redeems the bonds at maturity or on a call date. Bond Equivalent Yield An adjustment to a REMIC yield which reflects its greater present value, created because REMICs pay monthly or quarterly interest as opposed to semiannual interest payments on most other types of bonds. Bond Funds Registered investment companies whose assets are invested in diversified portfolios of bonds. Bond Insurance Insurance guaranteeing timely interest payments. The fee for the insurance is usually paid by the issuer to lower the cost of borrowing. Bond Insurers and Reinsurers A partial list of bond insurers includes American Municipal Bond Assurance Corp. (AMBAC), ACA financial Guaranty, Asset Guaranty Insurance Co., AXA Re Finance, Capital Guaranty Insurance Co., Capital Markets Assurance Corp. (CapMAC), Capital Reinsurance Co. (Capital Re), Enhance Reinsurance Co. (Enhance Re), Financial Security Assurance (FSA) and Municipal Bond Insurance Association (MBIA). Bond Rating A measure of the expected performance, quality and safety of a bond issue. Moody's and Standard & Poor's are the two largest rating agencies and the two used most widely here. The Fitch Investors Service ratings are used for Municipal bonds. Bonded Debt The portion of an issuer's total debt represented by outstanding long-term bonds. Book Entry Bond A bond that has no certificate, but records of the owner are kept by a depository and its members (banks and brokerage firms). Bought Deals GSE-issued securities sold through negotiated direct placements or competitive bids, with terms and size determined by the immediate needs of the GSE. Broker A person acting as an intermediary between buyers and sellers of securities for commission. The brokers work for security exchanges or in over-the-counter markets. Bull Market A period of rising securities prices and declining bond yields. Bullet A security with a fixed maturity and no call feature. Buying Power Amount of money available to buy securities, determined by tabulating the cash in brokerage accounts, and adding the amount that could be spent if securities were margined to the limit. The market cannot rise beyond the available buying power. Call The action taken to pay the principal of bonds 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 prior to the maturity date. The premium is usually expressed as a percentage of the principal. Call Protection A dollar amount paid as a penalty or premium by an issuer who exercises the right to redeem securities prior to the maturity date. The premium is usually expressed as a percentage of the principal. A criterion used to search for a group of bonds meeting defined qualities. The call protection allows the user to define a period of time in which the bond will not be callable. 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 chosen. Continuously callable bonds or those callable on 30 days notice will be excluded if a call protection date is specified. Call Risk For a REMIC, 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 top interest rate that can be paid on a floating-rate security. Certificate of Deposit Negotiable certificates issued by commercial banks with maturities that vary from a few weeks to several years. The bank agrees to pay a fixed interest rate that is based on the money market. CD's are also available as nonnegotiable bank savings deposits with specified maturities. Certificate of Ownership Proof of ownership, a document issued to shareholders by a trustee of a unit investment trust. Clearing House Funds Funds in the form of checks that are transferred between banks through the Federal Reserve System and that require three days to clear. Close-Out A procedure that allows the dealers who have bought securities but have not yet received them to take action to complete the transaction. Closed-End Investment Company An investment company created with a fixed number of share which are then traded as listed securities on a stock exchange. After the initial offering, existing shares can only be bought from existing shareholders. Closing Quotation A market maker's final bid and asked prices for an issue at the end of the business 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 is in default. Collateralized Mortgage Obligations (CMOS) Bonds backed by a pool of mortgage pass-thru securities or mortgage loans. Commission A fee paid to a dealer when the dealer acts as an agent in a securities transaction. The dealer does not receive a commission if he/she is acting as a principal in the trade. Common Stock A share representing participation in the ownership of an enterprise, generally with the right to participate in dividends and in most cases to vote on major matters affecting stock holder interests. Companion Tranche A REMIC tranche that absorbs a higher level of the impact of collateral prepayment variability in order to stabilize the principal payment schedule for a PAC or TAC tranche in the same offering. 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 An allowance or profit an underwriter offers a dealer who is not a member of the underwriting syndicate for helping sell an offering. Confirmation A document used by securities dealers and banks to state in writing the terms and execution of an oral agreement to buy or sell a security. 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 annualization of the Single Monthly Mortality (SMM), which reflects the outstanding mortgage loan principal that prepays in one month. Conventional Mortgage Loan A mortgage loan granted by a bank or thrift institution collateralized solely by real estate and not insured or guaranteed by a government agency. Convertible Bond A bond containing a provision that permits conversion to the issuer's common stock at some fixed exchange ratio. Convexity A measure of the change in a security's duration with respect to changes in interest rates. The more convex a security is, the more its duration will change with interest rate changes. Corporate Bond These are debt instruments that companies issue that are considered financial obligations of a corporation. Corporate bonds can be broken down into three categories; debentures, medium term notes, and commercial paper. Interest from these bonds is fully taxable on all levels. 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 noncallable formats. Cost of Funds Index (COFI), 11th District The monthly weighted average cost of funds for savings institutions 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 and is used to set rates on adjustable-rate mortgages, mortgage-backed securities and public issues of floating-rate debt. some issues may use the national COFI rather than the 11 District's. Coupon (1) The interest rate, expressed as a percent, paid on a bond.(2) The datachable 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 semianually. They are presented to an issuer's paying agent or deposited in commercial bank for collection. Coupon Frequency Most U.S. bonds pay interest on a semi-annual basis. For example, the Treasury 8 1/8% due 5/15/2021 will pay coupons of 4.0625% of face value on 5/15 and 11/15 of each year until maturity. Most non-US domestic bond issues pay annual coupons. Other exceptions are bonds that pay coupons monthly, quarterly or at maturity. In addition to bonds, many money market instruments pay coupons. But unlike bonds, they typically pay a single coupon on the maturity date. Short dated Certificates of Deposit [CD's] are an example of these one-coupon securities. 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 nonseasonally adjusted U.S. City Average All Items Consumer Price Index for All Urban Consumers, published by the Bureau of Labor Statistics of the U.S. Department of Labor. Credit Spread A yield difference, typically in relation to a comparable U.S. Treasury security, that reflects the issuer's credit quality. Credit spread also refers to the difference between the value of two securities with similar interest rates and maturities when one is sold at a higher price that the other is purchased. 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 an investor's return on a bond calculated by dividing the annual interest on the bond by the market price. It is the actual income rate or the yield to maturity as opposed to the coupon rate (the two would be the same if a bond was purchased at par). For example, a 10% (coupon rate) bond with a face value (par) of $1000 is bought at a market price of $800. The annual income on the bond is $100, but since $800 was paid for the bond, the current yield is $100 divided by $800 or 12 1/2%. CUSIP The 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 municipal, U.S. government, and corporate securities.To enter a CUSIP into a field for a search, enter the entire CUSIP or a portion of the CUSIP to see a range of CUSIPs. (i.e. if 3567 were entered into the field, bonds beginning with 3567 would be displayed on the results screen.) 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 date from which the bondholder is entitled to receive interest. The bondholder may actually receive the bonds on a different date. Day Order An order that is valid only for the remainder of the trading day in which it was entered. Day Trading The act of buying and selling securities on the same day. Daycount The date of a bond issue from which the first owner of a bond is entitled to receive interest. 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. A dealer buys and sells securities and holds inventory. Debenture Unsecured debt obligation, used against the general credit of a corporations, rather than against a specific asset. Deep Discount Bonds Bonds selling for a price much less than the face value, generally 80% of par. Bonds selling at an original issue discount are not included in this category. Default Failure to pay principal or interest when due. Defaults can also occur for failure to meet non-payment obligations, such as reporting requirements, or when a material problem occurs for the issuer, such as a bankruptcy. Denomination The face amount or par value of a bond. This is the amount the issuer agrees to pay on the maturity date. 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. They have no periodic interest payments; the investor receives the note's face value at maturity. Discount Rate The rate the Federal Reserve charges on loans to member banks. Discount Yield The yield on a security sold at a discount - U.S. treasury bills sold at $9750 and maturing at $10,000 in 90 days, for instance. Also called bank discount basis. To figure the annual yeild, divide the discount ($250) by the face amount ($10,000) and multiply that number by the approximate number of days in the year (360) divided by the number of days to maturity (90). The calculation would result in 10%. Distribution of Principal Return of principal to unit trust shareholders, usually when a bond in the portfolio reaches maturity, is called or, if necessary, is sold prior to maturity. Dividend Rate The fixed or floating rate paid on preferred stock based on par value. 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. Double and Triple Tax-Exemption Securities that are exempt from state and local as well as federal income taxes are said to have double or triple tax-exemption. Downgrade The lowering of a bond's rating. 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 informing the potential investors about the securities and that no incorrect statements are included. Duration The common objective behind the different definitions of duration is to measure the price sensitivity [and, therefore market risk] of a fixed-income security to changes in its yield. Bonds of similar duration will have similar price movements for a given move in interest rates. The resulting figure is a measure of the volatility risk associated with owning the bond. If a bond's duration is 4.5 years, the price of the bond will fall 4.5% for a 1% rise in interest rates. Effective Duration takes into account any calls, puts, or other options of the security. Modified Duration does not take these into account. Embedded Option A provision within a bond giving either the issuer or the bondholder an option to take some action against the other party. The most common embedded option is a call option, giving the issuer the right to call, or retire, the debt before the scheduled maturity date. Emerging market A financial market of a developing country, usually a small market with a short operating history. Escrowed Munis 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. Evaluator An independent service responsible for appraising the value of securities in a trust's portfolio. Ex Dividend Rate The first day of trading when the seller, rather than the buyer, of a stock will be entitled to the most recently announced dividend payment. The date set by the NYSE (and generally followed on other U.S. exchanges) is currently two business days before the record date. 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. As a result, they may miss the opportunity to earn a higher rate of interest on their money. Extraordinary Redemption This is different from optional redemption or mandatory redemption in that it occurs under an unusual circumstance such as destruction of the facility financed. Face Amount The value at maturity of a bond. This is also called par. 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. \"The Bond Buyer\" publishes the \"Monthly Factor Report,\" which contains a list of factors for Ginnie Mae, Fannie Mae and Freddie Mac securities. Fannie Mae, Freddie Mac and trustees of private label REMICs also publish REMIC tranche factors. Fannie Mae The Federal National Mortgage Association. A congressionally chartered corporation that buys mortgages on the secondary market, pools them and sells them as mortgage-backed securities to investors on the open market. Monthly principal and interest payments are guaranteed by FNMA but not by the U.S. Government. 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. It is reported with a one-day lag (Monday's rate is reported Tuesday morning) and may be found in various financial information services. 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. changes in the federal funds rate are sometimes studied by economists and investors for clues to Federal Reserve intentions. Federal Reserve Bank One of 12 central banks that make up the Federal Reserve System. These banks regulate money, banking and credit. They are located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco. Federal Reserve Board The governing board of the Federal Reserve System, consisting of seven governors appointed by the President, subject to Senate approval. The governors serve 14-year terms. Their responsibilities include setting bank reserve requirements, discount rates, implementing monetary policies, establishing regulations for national banks and performing a variety of services for banks. Financial Sector Bonds Bonds issued by companies in the financial sector may include: Banks, Finance, Insurance, Brokers, REITS, Savings & Loans. Firm Executable These offerings 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. Typically securities dealers quoting firm executables offerings will stand up to the price offered providing they have adequate inventories to meet the order requirements. First Call Date The right of the bond issuer to redeem the bonds before its maturity date is usually accompanied by a schedule of call dates and prices at which the bond can be called on each corresponding call date. The earliest of which is the 'First Call Date'. Fitch Credit Ratings A designation given by Fitch's to indicate the relative credit quality, or the strength of the ability to pay a bond's obligation.Fitch's ratings range from AAA, AA, A, and so on down to C, its lowest.AAA: Highest Rating AA: Very Strong A: Strong BBB: Adequate BB: Uncertain B: Vulnerable CCC: High risk CC: High Risk C: High Risk DDD: Default or liquidation DD: Default or liquidation D: Default or liquidation Adjustments can be made within a rating category by adding a + or -. For example, AA+, AA, and AA- are all within the AA category. Fitch Investors Service A credit-rating agency that also issues company, issuer and industry reports. Fixed-Income Security A security, such as a note or bond, that pays a guaranteed rate of interest. 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 REMIC A REMIC 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 Bonds A bond issued on the domestic capital market of another company. Fourth Market Trading of securities between investors who do not use the services of brokers or dealers. Frequency The interval of time at which the dividends are paid to the owner of the bonds. (e.g. semi-annually, quarterly) 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 bond that is high grade and meets its required payments of principal and interest with no difficulty. 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. Global Debt Facility The issuance platform used by most GSEs when issuing \"Global\" debt into the international marketplace or a particular foreign market. Has same credit characteristics as nonglobal debt but is more easily \"cleared\" through international clearing facilities. Government Bonds Bonds issued by governments or agencies of governments, which may include foreign as well as U.S. governments. Government National Mortgage Association (GNMA) Also known as \"Ginnie Mae\". An agency operated by the Department of Housing and Urban Development to purchase mortgages from private lenders, package them into pass-through securities and sell them to investors. The securities are backed by the U.S. government and are fully taxable. Grantor Trust Special-purpose vehicle set up to issue fixed-rate capital securities and use the proceeds to purchase debt of the parent company. Investors who hold interest in the trust are taxed as if they owned pro rata undivided interest in the trust's assets. Hedge An investment made with the intention of minimizing the impact of adverse movements in interest rates or securities prices. High-Grade Bonds Top-rated bonds, usually triple-A, that carry relatively little risk. High Yield Bonds Also called \"junk bonds\". These bonds are usually rated lower than BBB/Baa and are considered speculative compared to investment grade bonds. The yields are also higher on these bonds than on investment grade bonds. 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 a single-family or multifamily housing. Index Ratio For any particular date and any particular inflation-indexed security, the Reference CPI-U applicable to such date divided by the Reference CPI-U applicable to the original issue date (or dated date, when the dated date is different from the original issue date). 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-adjusted Principal For an inflation-indexed security, the principal amount of the security, derived by multiplying the par amount by the applicable index ratio. Inflation Indexed Securities Notes periodically issued by the GSEs whose return is adjusted with changes in the PPI or CPI. Initial Offering Price The charge 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. 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. 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 inflation-adjusted principal of a specific issue of notes or bonds. Inverse Floater A REMIC 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). 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 (Investment Only) Security In the case of a REMIC, an IO tranche is created deliberately to pay investors 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. Issue Description The description of the bond listing title of the issue, name of issuer, coupon and maturity date.To enter an issuer's name for a search, enter some of the first few letters of the issuer's name or enter the entire name. Issuer An entity which issues and is obligated to pay principal and interest on securities. Jumbo Pools Ginnie Mae II pass-through mortgage securities collateralized by pools which are generally larger and contain mortgages that are often more geographically drivers 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 Ba or BB or lower, generally paying interest above the return on more highly rated bonds; sometimes know 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 Orders where the customer has changed price, settlement, or asked for a quantity greater than available. Dealer will treat this as a subject order. Dealer may reject the order if changes are unacceptable. Limited-liability Company A special purpose company incorporated under special limited-liability company legislation enacted in many states and foreign countries. This type of entity is structured as a \"pass-through\" and treated like a partnership for tax purposes. Limited Partnership An entity formed under state legislation that enables large number of investors to become limited partners of a partnership, owning and economic interest in the entity's assets, but sharing in its liabilities only to the extent of their initial investment. Limited Tax Bond A bond secured by a pledge of a tax or category of taxes limited as 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 seeing without significant losses. Listed Bonds that are listed and traded over the major exchanges: NYSE, AMEX and NASDAQ. Lockout The period of time before a REMIC investor will begin receiving principal payments. Make Whole Call The bond is redeemable at par plus a premium. The premium is based on the yield of the then current treasury. Example: Assume a bond has a make whole + 50 basis points call provision with the current treasury trading at 6.00%. The bond would then be callable at 6.00 + 50 basis points to equal a 6.50 % yield basis. Mark-To-Market The recording of the actual market values of securities. Market A pricing methodology used to sell the bond at its best price available at the time the order is filled. Market Maker A firm or person actively involved in making bids and offers in the over-the-counter market. 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, and it is considered poor when the trading is less active and spreads are larger. Marketability A measure of the ease with which a security can be sold in the secondary market. Markup The fee charged by a dealer who purchases a security from a market maker and sells it to a customer at a higher price. The fee is included in the price of the bond and is not listed separately in the order confirmation. Maturity Date This is the date when the principal amount of a security becomes due and payable. 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 FROM field. The greatest amount of time to the maturity should be entered in the TO field. The fields allow entry of two different time units (i.e. 30 days to 6 months could be entered as FROM: 30 d TO: 6m, etc.). The default unit of time is years (Y), so if a user entered \" FROM: 3 TO: 8\", bonds which mature between 3 and 8 years from today would be displayed. The mm/yy format may also be used (i.e. 5/05 to 5/10 shows bonds that mature from May 2005 through May 2010). Maturity Date of MSB The last possible date on which the last payment of the longest loan may be paid (also know as \"stated maturity\"). 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. Moody's Credit Ratings A designation given by Moody's to indicate the relative credit quality, or the strength of the ability to pay a bond's obligation. 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 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 to 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 collect payments on the loans in the pool and \"passes through\" the principal and interest to the security holder on a pro rata basis. Mortgage Pass-through Security 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 to the mortgages. Municipal Bonds Fixed Income Securities issued by state and local governments or their agencies. Mutual Fund Also known as an open-end investment company, to differentiate it from a closed-end investment company Mutual funds invest pooled cash of many investors to meet the fund's stated investment objective. Mutual funds stand ready to sell and redeem their share at any time at the fund's current net asset value: total fund assets divided by shares outstanding. Narrowing the Spread Also called \"Closing the Market\". The action taken by a dealer to reduce the difference between bids and offers. NASDAQ The National Association of Securities Dealers Automated Quotations. This is a computerized network by which NASD firms can communicate bids and offers for stocks and bonds traded over-the-counter. These securities are NOT listed on an exchange. Near Money A bond that is close to its maturity date. Negative Convexity A characteristic of REMICs and other callable or prepayable securities that causes investors to have their principal returned sooner than expected in a declining interest rate environment or later than expected in a rising interest rate environment. In the former scenario, investors may have to reinvest their funds at lower rates (\"call risk\"); in the latter, they may miss an opportunity to earn higher rates (\"extension risk\"). Net Price The total amount an investor pays for a bond. New-Issue Market Market for new issues of municipal bonds and notes. 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. Next Coupon Date the security will pay Next Coupon.When entering search criteria, the search range can be defined by entering the least number of days(d), months (m)or years (y) to next coupon in the FROM field. The greatest amount of time to the next coupon should be entered in the TO field. Note that if a next coupon FROM and TO date is specified in the offerings search, offerings having any coupon payment (including coupon payments beyond the next one) within the date range will be retrieved. Non Callable 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 promises to pay specified amounts of money, secured by specified sources of future revenues, such as taxes, federal and state aid payments and bond proceeds. 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. 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. 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 This is used primarily with municipal bonds. The price, expressed in eights of a point, or yield, expressed in decimals, for each maturity of serial 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 by a purchaser to buy 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 which 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 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 Bond trading conducted outside an exchange. Usually via telephone. Overnight Position The inventory a firm or trader holds at the end of the trading day. 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 REMIC 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. This amount must be paid at maturity. Parity Bonds Two or more issues having the same priority of claim or lien against pledged revenues. Parking The process of placing assets in a safe investment for a short period of time. Parking can also be the act of selling inventory to a customer with an understanding that the customer will eventually sell it back to the firm for a previously negotiated price. 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 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 REMIC, 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 A collection of mortgage loans assembled by an originator or master servicer as the basis for a security. In the case of Ginnie Mae, Fannie Mae or Freddie Mac mortgage pass-through securities, pools are identified by a number assigned by the issuing agency. Position The status of an investor's securities. It can also refer to the purchasing of a block of securities. Posted Since Date offerings were put on the system. 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. Preferred Stock Stock which provides a specific dividend that is paid before any dividends are paid to common stock holders, and which takes precedence over common stock in the event of a liquidation. Usually does not carry voting rights. Premium The amount over the par value for a bond. Premium Bond A bond with a price about the par value. Premium Call A provision for a bond allowing 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. 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 A pricing methodology by which a bond is traded at the $ price specified. The price is specified per $100. For example, buying a bond for $95.50 represents paying $955.00 for the bond. Primary Market The market for New Issue securities. After bonds are traded here, they are then traded on the secondary market. Prime Rate The lowest interest rate charged by commercial banks to their best corporate customers. Principal Trade A means of compensating the broker of a bond trade solely on the basis of a mark up or spread established through purchasing a bond, holding it in inventory, and reselling the bond at market rates. 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 institution or home builders. Proceeds The money received by a bond issuer at the close of the sell. 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. Prudent Man Rule This is a code of conduct to guide fiduciaries in investing responsibly. The rule holds that an investor should work to preserve capital and avoid speculative investments. PSA Standard Prepayment Model A model based on historical mortgage prepayment rates that is used to estimate prepayment rates on mortgage securities. The PSA model is based on the Constant Prepayment Rate (CPR), or the amount of outstanding principal that is prepaid in a month. Projected and historical prepayment rates are often expressed as \"percentage of PSA.\" A prepayment rate of 100% PSA implies annualized prepayment rates of 0.2% CPR in the first month, 0.4% CPR in the second month, 0.6% CPR in the third month, and 0.2% increases in every month thereafter until the thirtieth month, when the rate reaches 6%. From the thirtieth month until the mortgage loan reaches maturity, 100% PSA equals 6% CPR. 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 listed with the Securities and Exchange Commission. Municipal securities are usually filed with the Municipal Securities Rulemaking Board. Public Offering Price The aggregate value of securities in a unit investment trust fund, divided by the number of units, plus the applicable sales charge. This is the price at which units are offered for sale to the public. Public Securities Association A trade organization of dealers, brokers, and bankers who underwrite and trade securities offerings consisting of U.S. Treasury, federal agency, municipal, mortgage, corporate and money market issues. Put Bond A bond that is redeemable by the holder at his option or upon certain circumstances. 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. Quantity in Bonds The number of bonds (i.e. 10 bonds = $10,000.00 face value) 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. The abbreviation OW is frequently seen in the PINK SHEETS (listing of stocks) and YELLOW SHEETS (listings of corporate bonds) published by the NATIONAL QUOTATION BUREAU for securities traded by OVER THE COUNTER dealers. 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. Recession A downturn in economic activity on a large scale, such as in the U.S. economy. The Commerce Department defines a recession as two or more quarters of decline in output, as measured by Gross national Product (GNP) or Gross Domestic Product (GDP). Record Date The date for determining the owner entitled to the next scheduled payment of principal or interest on a mortgage security. 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. 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. P & I payments are made to the registered owner on the record date. Registrar The party responsible for maintaining records on the behalf of a bond issuer. Regular Way Trade A bond sale or purchase where the delivery and payment are made on the third business day following the transaction. US Treasury bonds are considered regular way trades if the payment and delivery are made one day following the transaction. 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. Because of changes in the 1986 Tax Reform Act, most CMOs are now issued in REMIC form to create certain tax advantages for the issuer. The terms REMIC and CMO are now used interchangeably. Repurchase Agreements Also called repos, or RPs, these are agreements between a buyer and seller of securities whereby the seller agrees to repurchase the securities at a stated price and stated time. 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. Retail Individual investors in securities, not institutional investors. 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:Utility: Used to finance gas, water and sewer, and electric power systems. The bonds are usually backed by user fees. Health Care: Used for construction of non-profit hospitals and health care facilities. Debt is normally paid out of gross revenue. Transportation: Used to finance tunnels, bridges, toll roads, airports and transit systems. User fees are used to pay back debt.Round LotA unit of trading or a multiple of that unit. Typically $100,000 is the measure of round lots of bonds. Rules of Fair Practice The regulations governing the conduct of the members of the National Association of Securities Dealers. S&P Credit Ratings A Standard & Poor's issue credit rating is a current opinion of 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. The issue credit rating is not a recommendation to purchase, sell, or hold a financial obligation, inasmuch as it does not comment as to market price or suitability for a particular investor. 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. Sales Credit An additional cost added to the price of the bond. Savings Bond A bond issued by the Federal Government designed specifically for individual investors. The bonds come in denominations of ranging from $50 to $10,000. The interest earned on the bonds is tax exempt from both state and local income taxes. Scale The coupon rates, offering prices and yields for each maturity of a serial bond. Scenario Analysis Examining the likely performance of an investment under a wide range of possible interest rate environments. Secondary Market The market in which securities are traded after they are initially offered in the primary market. Most trading occurs in the secondary market. Seasoned securities are traded in the secondary 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 full disclosure of accurate information about an issue. Securities and Exchange Commission. (SEC)A federal agency consisting of five commissioners appointed by the President on a rotating basis for five-year terms. The chairperson is designated by the President. No more than three commissioners may be of the same political party. This agency was 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. 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 issues 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 bought at auction or in the secondary market is delivered in exchange for funds. Short-Term Debt Debt with a maturity of less than one year. 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. 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. 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. Sponsor An investment firm that organizes a unit investment trust and offers the units for sale. Spread The difference between the bid and asked prices for a bond. State (Municipal Bonds Only) This is the state in which the bond was issued.To enter the state, select from the drop-down list by clicking on the down arrow and highlight the desired state. Stepped Coupon A bond with a coupon rate that increases periodically, until final maturity. Stripped Yield calculation after subtracting (stripping) the accrued dividend. STRIPS (Separate Trading of Registered Interest and Principal of SecuritiesThe Treasury Department's program under which eligible securities are authorized to be separated into principal and interest components, and transferred separately. These components are maintained in book-entry accounts and transferred in TRADES (Treasury / Reserved Automated Debt Entry System). Subj AMT Bonds with interest that may be subject to the Alterative Minimum Tax (AMT) when a taxpayer has certain tax preference items or deductions. Each individual should consult with his/her tax advisor to determine potential exposure to the AMT. Subject Offerings Indications of offerings that are contingent on availability and / or other criteria, and must be verified before an execution of the order can take place. Subordinated Securities Securities with a promise to pay that cannot legally be fulfilled until payments on certain other obligation have been made. Super PO 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. Swap The sale of a block of bonds and the purchase of another block of similar market value. Swaps may be made to establish a tax loss, upgrade credit quality, extend or shorten maturity, etc. Symbol Bonds that are listed and traded on the major exchanges have a symbol similar to stocks. For example, an IBM bond maturing in 2007 might have a symbol such as IBM07. T-Bill Rate The weekly average auction rate of the three-month Treasury bill stated as the bond equivalent yield. TAC Tranche 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 transferred to a companion tranche. Take Delivery Accepting receipt of security certificates after the bonds have been purchased and transferred between accounts. Taxable Bonds The interest on these bonds is taxable on the federal level and possibly on the state level as well. Telephone 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. These bonds usually require a mandatory sinking fund. 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. 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, usually a year. Trade Date The date on which a bond transaction occurs. Trader A person or firm engaged in buying or selling bonds for a profit. The traders usually hold the bonds in inventory for only a short period of time. Tranche A class of bonds in a REMIC offering which shares the same characteristics. \"Tranche\" is the French word for \"slice.\" 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 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 These bonds are long-term obligations of the U.S. Treasury that mature from 10 to 30 years. Interest is paid semi-annually, and the bonds can be easily purchased in minimum denominations of $1,000 or multiples thereof. Treasury Investment Growth Receipt (TIGR) A 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. Treasury Notes U.S. Government obligations that are available for terms of 1 to 10 years. 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 program 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. They are offered in amounts of $1,000 or more, and pay no interest (the interest is reinvested over the life of the security). STRIPS and zeroes are well suited to such long-term goals as college planning and retirement savings. 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 A bank 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. Unit A fractional, undivided interest in a unit investment trust. Unit Investment Trust Investment funds created with a fixed portfolio of investments that never changes over the life of the trust. They are created by brokerage houses, and are liquidated as investments within the trust are paid off. They provide a steady, periodic flow of income to investors 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 sharply. 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) The weighted average number of months since the date of the loan origination of the mortgages in a mortgage pass-through security pool issued by Freddie Mac, weighted by the size of the principal loan balances. Weighted Average Maturity (WAM) The weighted average number of months to the final payment of each loan backing a mortgage security, weighted by the size of the principal loan balances. Also known as weighted average remaining maturity (WARM) and weighted average remaining term (WART) Window In a REMIC bond, the period of time between the expected first payment of principal and the expected last payment of principal. Yield This is 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) Yield to call is computed in the same manner as yield to maturity, except the maturity date is replaced by the call date and the redemption value at maturity is replaced by the call price. Yield to Maturity (YTM) A yield concept designed to give an investor the average annual yield on a security. It is based on the assumption that the security is held by the investor until final maturity, and that all interest received can be reinvested at the yield to maturity. Yield to Par Call Yield to par call is computed in the same manner as yield to maturity, except that the maturity date is replaced by the par call date, and that the redemption value at maturity is replaced by the par call price. Z-Tranche/ Z-Bond Often the last tranche in a REMIC, the Z-tranche receives no cash payments for an extended period of time until the previous tranches are retired. While the other tranches are outstanding, the Z-tranche receives credit for periodic interest payments that increase its face value but are not paid out. When the other tranches are retired, the Z-tranche begins to receive cash payments that include both principal and continuing interest. Zero Coupon A security that is issued at a deep discount and pays no annual interest. The interest is accrued and compounded semiannually at the original interest rate until the maturity date, and a payment of the full face value of the bond is then made to the holder.