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Financial Terms Related to Bond Financial Terms related to Bond This document is part of the valuable contents available at www.ftpall.com, a free online glossary with more than five thousand financial and business terms. This document can be copied and distributed freely respecting its original format. It is forbidden its transcription, translation or change on its format without authorization of its author or editor. www.ftpall.com 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. Ban or bond anticipation note • Is a short term security issued by a municipality. The security will be paid or redeemed by funds from a new issue. It is a cash management tool. Bearer bond Find thousands of financial terms at www.ftpall.com 2 | P a g e • 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. • Bonds for which payments are made to the bearer. Bond • The term bond refers to long-term debt of companies or governments. • A formal certificate of debt, issued by corporations or units of government. • 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. www.ftpall.com • A bond is essentially a loan made by an investor to a division of the government, a government agency, or a corporation. The bond is a promissory note to repay the loan in full at the end of a fixed time period. The date on which the principal must be repaid is the called the maturity date, or maturity. In addition, the issuer of the bond, that is, the agency or corporation receiving the loan proceeds and issuing the promissory note, agrees to make regular payments of interest at a rate initially stated on the bond. Interest from bonds is taxable based on the type of bond. Corporate bonds are fully taxable, municipal bonds issued by state or local government agencies are free from federal income tax and usually free from taxes of the issuing jurisdiction, and Treasury bonds are subject to federal taxes but not state and local taxes. Bonds are rated according to many factors, including cost, degree of risk, and rate of income. • Bonds are debt and are issued for a period of more than one year. The U.S. Find thousands of financial terms at www.ftpall.com 3 | P a g e 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. • A legal obligation of an issuing company or government to repay the principal of a loan to bond investors at a specified future date. Bonds are usually issued with a Par or face value of $1,000, representing the amount of money borrowed. The issuer promises to pay a percentage of the par value as interest on the borrowed funds. The Interest payment is stated on the face of the bond at issue. Bond agreement • A contract for privately placed debt. Bond arbitrage hedge funds • Try to capture interest rate differentials or spreads due to mispricing or better www.ftpall.com financing than general market participants can attain. Sometimes, there can be a yield pickup due to convergence between two instruments, a pricing discrepancy due to inefficient evaluations of senior and junior credit risks, or relative value differences. Bond covenant • A contractual provision in a bond indenture. A positive covenant requires certain actions, and a negative covenant limits certain actions. Bond equivalent basis • The method used for computing the bond-equivalent yield. Bond equivalent yield • The annualized yield to maturity computed by doubling the semiannual yield. • Is the procedure which relates discounted rates such as treasury bills and Find thousands of financial terms at www.ftpall.com 4 | P a g e eurodollars to a bond standard. It is typical for discounted paper to be computed on the basis of a 360-day year whereas bonds are usually based on a 365 day year. If this equivalency is not done then the quoted short-term rates for discounted instruments may be understated. • Bond yield calculated on an annual percentage rate method. Differs from annual effective yield. Bond fund • A mutual fund whose investment objective is to provide stable income with a minimal capital risk. It invests in income-producing instruments, which may include corporate, government or municipal bonds. See also: Mutual Fund. • A fund that holds municipal, corporate, and/or government bonds. • Are mutual funds that invest in credit instruments. There can be distinctions, such as, treasury, international, sovereign, mortgage backed, investment grade corporate www.ftpall.com 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% Find thousands of financial terms at www.ftpall.com 5 | P a g e of its face, or par value. 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 dollar basis or on a yield-to-maturity basis. See also: Quotation; Stock Quote. 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 www.ftpall.com 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. • An evaluation of the possibility of default by a bond issuer, based on an analysis of the issuer's financial condition and profit potential. Bond rating services are provided by, among others, Standard & Poor's 500, Moody's Investors Service and Fitch Investors Service. Bond refunding decision • 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 Find thousands of financial terms at www.ftpall.com 6 | P a g e • A system that monitors and evaluates the performance of a fixed-income portfolio, as well as the individual securities held in the portfolio. BONDPAR decomposes the return into those elements beyond the manager's control--such as the interest rate environment and client-imposed duration policy constraints--and those that the management process contributes to, such as interest rate management, sector/quality allocations, and individual bond selection. Brady bonds • These are issued in conjunction with defaulted Latin American sovereign debt. Named after a Treasury secretary, Nicholas Brady. Brady bonds are debt-for-debt swaps. • Bonds issued by emerging countries under a debt reduction plan. Bull bear bond • Bond whose principal repayment is linked to the price of another security. The www.ftpall.com 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 • Foreign bond issue made in London. Call price 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 Find thousands of financial terms at www.ftpall.com 7 | P a g e specified call price. Century bonds • Are securities with a maturity equal to 100years. Collateral trust bond • 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. • Is a security issued by a corporation and is secured by other securities.
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