| Word | Definition |
| Above Par |
A bond trading higher than its face value.
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| 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.
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| Accretion |
Increase of accounting worth in the price of a bond bought at an original discount. It is adjusted for the difference between the original discount and the par value. Discounted bonds are accreted (increased) to par while premium bonds are amortized (decreased) to par.
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| Accretion Bond |
Often the last tranche in a CMO, the accretion bond, or 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.
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| Accrual Bond |
Bond that earns interest but does not pay any income until it matures.
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| Accrued Interest |
The interest accumulated on a bond since the last interest payment date. It is paid in addition to the market price of the bond to the seller who earned the interest since the last payment date.
There are two methods for calculating accrued interest:
- 30-day month/ 360-day year method that is used for corporate and municipal bonds.
- Actual day month/ 365-day year method used for government bonds.
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| Accumulator |
An investor attempting to affect the market value of a particular bond issue that contains a sinking fund. The investor acquires as much of the issue as possible to control the floating supply.
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| Active Tranche |
A CMO tranche that is currently paying principal payments to investors.
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| Actual/365 |
The actual number of days between two interest payment dates, to determine how much interest a bondholder is due. The method is used for interest on U.S. Treasury bonds and CDs.
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| Ad Valorem Tax |
[Latin: to the value added] A tax based on the value (or assessed value) of real property.
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| 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.
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| Advance Refunding |
A financing structure under which new bonds are issued to repay an outstanding bond issue prior to its first call date. Generally, 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.
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| After-Tax Yield |
After income taxes on interest income are paid and any capital gains taxes are assessed, the net return for a bond investment calculated on a percentage basis.
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| Agency |
A government sponsored enterprise that was set up by an act of congress. Bonds issued by the agency carry an implied backing by the U.S. government.
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| Agency Trade |
A trade in which the executing dealer is paid a commission to buy or sell a specific bond for a client. The commission is set prior to trade execution.
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| Agency Transaction |
A sale and purchase of bonds in which the dealer places bonds with the buyer on a commission basis rather than selling bonds that the dealer owns.
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| Agreement Among Underwriters (AAU) |
Legal document used principally in negotiated sales by underwriters. The document consists of the instructions, terms and acceptances, and the standard terms and conditions.
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| All or None (AON) |
Where the offeror of a block of bonds will only sell all of the available bonds and not only a portion of them.
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| Allotment |
Distribution of bonds to syndicate members by the book running manager.
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| Allotment Letter |
A letter showing ownership of a new bond offering sent from the issuer to the buyer.
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| Alternative Minimum Tax (AMT) |
An alternative way of calculating income under the Internal Revenue Code. Interest on private-activity bonds [other than 501(c)(3) obligations] issued after August 7, 1986, is used for such a calculation.
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| American Call |
A bond call provision where the bond may be redeemed before maturity anytime after the first call date and continuously until maturity.
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| Amortization |
Reducing debt with periodic payments that cover all interest and principal due by maturity.
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| Announcement Date (or Launch Date) |
The day most of a new bond’s terms are made public. The bond can begin to be sold that date.
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| Applied Proceeds Swap |
Using the proceeds from the sale of one block of securities, to purchase as much of another block as possible.
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| Arbitrage |
In the municipal market, the difference in interest earned on funds borrowed at a lower tax-exempt rate and interest on funds that are invested at a higher-yielding taxable rate. Under the 1986 Tax Act, with very few exceptions, arbitrage earnings must be rebated back to the federal government.
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| Arbitrage Certificate |
Transcript certificate evidencing compliance with the limitations on arbitrage imposed by the Internal Revenue Code and the applicable regulations.
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| Ascending Yield Curve |
When short-term yields are lower than long-term yields. The most common shape of a yield curve, and also referred to as a positive or normal curve.
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| Ask Price |
The price you may purchase a bond from another investor or dealer.
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| Assessed Valuation |
The value of property against which an ad valorem tax is levied, usually a percentage of “true” or “market” value.
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| Asset |
Anything of value owned by a company or individual. Assets can include cash, inventory, other current assets; as well as land, buildings, equipment, etc.
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| Asset Allocation |
A term describing what percent of portfolio is invested among cash or short-term cash equivalents, stocks, and bonds. The percent of each is based on a number of factors including objectives, risk tolerance, investment experience, etc.
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| Auction |
Sealed-bid public sale of Treasury securities; method of determining the rate or yield.
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| Auction Rate Bonds |
Floating-rate tax-exempt bonds where the rate is periodically reset by a dutch auction.
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| Authority |
A separate state or local governmental issuer expressly created to issue bonds or run an enterprise, or to do both. Certain authorities issue bonds on their own behalf, such as transportation or power authorities. Authorities that issue bonds on the behalf of qualified nongovernmental issuers include health facilities and industrial development authorities.
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| Authorizing Resolution |
Issuer document which states the legal basis for debt issuance, and states the general terms of the financing.
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| Average Hourly Earnings |
Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls.
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| Average Workweek |
The average workweek reflects the number of hours worked in the private nonfarm sector.
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| Average-Life |
An estimate of the amount of time it will take for the return of half the principle in a mortgage-backed security based on the prepayment activity at various interest rates.
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