A-/A3 are similar rating categories issued by two different rating agencies, Moody's and S&P, to reflect long-term investment bond creditworthiness.

A-/A3 are a pair of rating categories issued by two different rating agencies, Moody's and S&P, to reflect long-term investment grade bond creditworthiness. The risk of default for investors or policyholders is somewhat low.
Investment grade ratings
A-/A3 is a credit rating in the middle of the investment grade credit ranking system. The rankings for Moody's and S&P from highest to lowest in the investment grade category are Aaa/AAA, Aa1/AA+, Aa2/AA, Aa3/AA-, A1/A+, A2/A, A3/A-, Baa1/BBB+, Baa2/BBB and Baa3/BBB-. A-/A3 are a pair of rating categories issued by two different rating agencies, Moody's and S&P, to reflect long-term investment grade bond creditworthiness. Both A- and A3 represent medium-level investment grade credit ratings for a debt issuer or a debt instrument.

A- / A3

Above par is a term used to describe the price of a bond when it is trading above its face value. This occurs when interest rates have declined so that newly-issued bonds carry lower coupon rates.

Above par is a term used to describe the price of a bond when it is trading above its face value. If the bond is taxable, the investor may elect to amortize the bond premium to offset taxable interest income; if the bond produces tax-exempt interest, the investor must amortize the premium in accordance with IRS rules. The basic reason for the inverse relationship is that an existing yield of a bond must match the yield of a new bond issued in a market with higher or lower prevailing interest rates. An investor who buys a bond trading above par receives higher interest payments because the coupon rate was set in a market of higher prevailing interest rates. Since bond issuers attempt to borrow funds from investors at the lowest cost of financing possible, they will decrease the supply of these higher interest-bearing bonds, knowing that bonds issued in the future may be financed at a better interest rate.

Above Par

Accreted value is a bond’s current value on a balance sheet including the interest accrued even though that is not paid until the bond matures.

Table of Contents
What Is Accreted Value?
Understanding Accreted Value Accreted value is a bond's current value—often calculated for balance sheet purposes—including the interest accrued (even though that is usually not paid until the bond matures).
Accreted value is the value, at any given time, of a multi-year instrument that accrues interest but does not pay that interest until maturity.
The concept of accreted value can be seen in zero-coupon bonds or cumulative preferred stock.
Accreted value can be conceptualized as the theoretical price of a bond if it were to be sold at a given time (and the market interest rates remained at their most recent level until maturity).
Accreted value of a bond may not have any relationship to its market value.
Accreted value is the value, at any given time, of a multi-year instrument that accrues interest but does not pay that interest until maturity. If current market interest rates fall, the fair market value of that bond will be higher than its accreted value and if rates rise, the value of the bond will be less than its accreted value. The accreted value of a zero coupon bond may be higher or lower than the market value of the bond because the accreted value is the linear extrapolation of the issue price to the redeemable price. Accreted Value and Bond Pricing
Accounting for Bond Accretion
Accreted Value FAQs
Accreted value is a bond's current value, often calculated for balance sheet purposes, including the interest accrued even though that is usually not paid until the bond matures.

Accreted Value

Acquisition debt is a debt obligation arising from the construction, improvement or purchase of a primary or secondary residence.

Acquisition debt is a financial obligation taken on during the construction, improvement, or purchase of a primary or secondary residence. If the mortgage amount is more than the cost of the home, plus the costs associated with any substantial improvements, only the debt that is not greater than the cost of the home plus improvements will qualify as home acquisition debt. The IRS considers home acquisition debt to be any mortgage obtained after Oct. 13, 1987 that was used to buy, build, or substantially improve a main or secondary home. The IRS limits the total amount of mortgage debt that can be treated as home acquisition debt. Under the Tax Cuts and Jobs Act, which passed Congress in December 2017, beginning in 2018, the amount of home acquisition debt (for new loans) that can be deducted decreased, to $750,000 ($375,000 for married couples filing separately).

Acquisition Debt

Aval is a third-party guarantee added to a debt obligation, primarily used in Europe.

An aval is a guarantee that a third party adds to a debt obligation. While avals have a range of functions, they can come particularly in handy with a range of purchase agreements, including a bond purchase agreement, cross-purchase agreement, and matched sale-purchase agreement. While avals have a range of functions, they can come particularly in handy with a range of purchase agreements, including bond purchase agreements, cross-purchase agreements, and matched sale-purchase agreements. A bond purchase agreement is a legally binding document between a bond issuer and an underwriter, which outlines the terms of a bond sale and reasons why the agreement may be canceled. Finally, matched sale-purchase agreement is an arrangement in which the U.S. Federal Reserve (the Fed) sells government securities to an institutional dealer or the central bank of another country, who agrees to sell it back to the Fed within a short period of time, in order to decrease banking reserves.

Aval

A bid bond is a debt secured by a bidder for a construction job, or similar type of bid-based selection process, for the purpose of providing a guarantee to the project owner that the bidder will take on the job if selected.

A bid bond guarantees compensation to the bond owner if the bidder fails to begin a project. A bid bond is replaced by a performance bond when a bid is accepted and the contractor proceeds to work on the project. A surety bond involves three primary players: the financial guarantor or surety of a construction bond, guaranteeing the obligee that the contractor (called the principal) will act in accordance with the terms established by the bond. A contractor purchases a bid bond from a surety, which carries out extensive financial and background checks on a contractor before approving the bond. A bid bond is thus an indemnity bond that protects a client if a winning bidder fails to execute the contract or provide the required performance bonds.

Bid Bond

A BOBL futures contract is a standardized futures contract based on a basket of medium-term debt issued by the German government.

A BOBL futures contract is a standardized futures contract based on a basket of medium-term debt issued by the German Federal Government. A BOBL futures contract is a standardized futures contract based on medium-term bonds issued by the German government. A BOBL futures contract is a standardized futures contract based on a basket of medium-term debt issued by the German Federal Government. Schatz futures are short-term maturity bonds, having an underlying basket of short-term German debt with maturities ranging from 21 to 27 months. As in the U.S. market, fixed income futures based on German government debt instruments are traded actively for short-, medium-, and long-term maturities.

BOBL Futures Contract

A bond fund invests primarily in bonds (government, corporate, municipal, convertible) and other debt instruments to generate monthly income.

A bond fund, also referred to as a debt fund, is a pooled investment vehicle that invests primarily in bonds (government, municipal, corporate, convertible) and other debt instruments, such as mortgage-backed securities (MBS). The types of bond funds available include: US government bond funds; municipal bond funds; corporate bond funds; mortgage-backed securities (MBS) funds; high-yield bond funds; emerging market bond funds; and global bond funds. Due to the inverse relationship between interest rates and bond prices, a long-term bond carries greater interest rate risk than a short-term bond. Most bond funds are comprised of a certain type of bond, such as corporate or government bonds, and are further defined by time period to maturity, such as short-term, intermediate-term, and long-term. Due to the inverse relationship between interest rates and bond prices, a long-term bond has greater interest rate risk than a short-term bond.

Bond Fund

A bullet bond is a debt investment whose entire principal value is paid in whole upon maturity rather than amortized across its lifespan.

A bullet bond is a debt investment whose entire principal value is paid in one lump sum on its maturity date, rather than amortized over its lifetime. In any case, bullet bonds generally pay less than comparable callable bonds because the bullet bond does not give the lender the option of buying it back if interest rates change. A bullet bond is a non-callable bond in which the principal is repaid as a lump sum when the bond matures. Typically, bullet bonds are more expensive for the investor to purchase compared to an equivalent callable bond since the investor is protected against a bond call if interest rates fall. First, the total payments for each period must be calculated and then discounted to a present value using the following formula:
> Present Value (PV) = Pmt / (1 + (r / 2)) ^ (p)
Pmt = total payment for the period
r = bond yield
p = payment period

Bullet Bond

Bid wanted in competition (BWIC) is an invitation extended by a seller to a number of securities dealers to set a price on a package of securities.

Bid wanted in competition (BWIC) is a formal request for bids on a package of securities, submitted by an institutional investor to a number of securities dealers. The Pension Board sued Saba Capital for allegedly mismarking certain bonds, noting that Saba’s bids-wanted-in-competition (BWIC) process produced bids with depressed prices. Bid wanted in competition (BWIC) is a formal request for bids on a package of securities, submitted by an institutional investor to a number of securities dealers. Larger positions included the following:
€8.5 million of HES Beheer (a Dutch ports services company)
€8.5 million of Schenck Process (a German technology group)
€8.1 million of Springer (a German publisher)
€8.3 million of CEP (a French insurance broker)
€7 million of Median Kliniken (a German rehabilitation clinics group)
€7 million of a UK cinema operator
€7 million of Wind (an Italian telecom company) The bid wanted in competition process is used to identify the best market price available for a package of assets.

Bid Wanted In Competition (BWIC)

Call protection is a provision in a bond that prohibits the issuer from buying it back during a set period early in its life.

Call protection is a provision of some bonds that prohibits the issuer from buying it back for a specified period of time. Callable corporate and municipal bonds usually have ten years of call protection, while protection on utility bonds is often limited to five years. Callable bonds may have ten years of call protection, while call protection on utility bonds is typically limited to five years. If the first call on the bond is ten years, and interest rates go down to 3% in the next five years, the issuer cannot call the bond because its investors are protected for 10 years. Call protection clauses usually require that an investor be paid a premium over the face value of the bond, which is subject to early retirement following the expiration of the call protection period specified in the clause.

Call Protection

The Canadian overnight money market rate is the rate at which major dealers arrange financing of securities inventory for one business day. 

The Canadian overnight money market rate is a measure or estimate of the interest rate at which major dealers can arrange the financing of securities inventory for one business day. The Bank of Canada is responsible for setting monetary policy, including setting short-term interest rates and regulating the flow of money through the economy.
The target rate is the average interest rate in use when financial institutions lend each other money overnight, to be used for one day, so as to cover the borrowing bank's daily transactions. It is considered comparable with the U.S. Federal Reserve’s target for the Federal funds rate, the Bank of England’s two-week “repo rate” and the minimum bid rate for refinancing operations (the repo rate) of the European Central Bank. The overnight rate is the rate at which major financial institutions borrow and lend one-day (overnight) funds to and from each other; the Bank sets a target level for that rate. The Canadian overnight money market rate is a bank lending rate overseen by the Bank of Canada, Canada's central bank.

Canadian Overnight Money Market Rate

A catastrophe bond is a high-yield debt instrument designed to raise money for companies in the insurance industry in the event of a natural disaster.

Table of Contents
What Is a Catastrophe Bond (CAT)?
Understanding Catastrophe Bonds
How CAT Bond Payouts Work
The Benefits and Risks of CAT Bonds In this way, CAT bonds offer investors stable interest payments even when interest rates are low and traditional bonds are offering lower yields. CAT bonds can offer diversification from economic and market risk because natural disasters don't usually correlate with economic events and stock market movements. Table of Contents
What Is a Catastrophe Bond (CAT)?
Understanding Catastrophe Bonds
How CAT Bond Payouts Work
The Benefits and Risks of CAT Bonds A catastrophe bond (CAT) is a high-yield debt instrument that is designed to raise money for companies in the insurance industry in the event of a natural disaster.

Catastrophe Bond (CAT)

A convertible debenture is a type of long-term debt issued by a company that can be converted into stock after a specified period.

A convertible debenture is a type of long-term debt issued by a company that can be converted into shares of equity stock after a specified period. A convertible debenture is a type of unsecured long-term convertible debt issued by a company, meaning that it contains a stock conversion option. A convertible debenture will usually return a lower interest rate since the debt holder has the option to convert the loan to stock, which is to the investors' benefit. Fully-convertible debentures have the option to convert all of the debt into equity shares based on the terms outlined at the debt issuance. As a result, non-convertible debentures will offer higher interest rates than their convertible counterparts since investors do not have the option to convert to stock.

Convertible Debenture

A convexity adjustment is a change required to be made to a forward interest rate or yield to get the expected future interest rate or yield.

A convexity adjustment is a change required to be made to a forward interest rate or yield to get the expected future interest rate or yield. AMD \= Annual modified duration \\begin{aligned} &\\text{AMD} = -\\text{Duration} \\times \\text{Change in Yield} \\\\ &\\textbf{where:} \\\\ &\\text{AMD} = \\text{Annual modified duration} \\\\ \\end{aligned} ​AMD\=−Duration×Change in Yieldwhere:AMD\=Annual modified duration​
CA \= 1 2 × BC × Change in Yield 2 where: CA \= Convexity adjustment BC \= Bond’s convexity \\begin{aligned} &\\text{CA} = \\frac{ 1 }{ 2 } \\times \\text{BC} \\times \\text{Change in Yield} ^2 \\\\ &\\textbf{where:} \\\\ &\\text{CA} = \\text{Convexity adjustment} \\\\ &\\text{BC} = \\text{Bond's convexity} \\\\ \\end{aligned} ​CA\=21​×BC×Change in Yield2where:CA\=Convexity adjustmentBC\=Bond’s convexity​
Assume a bond has an annual convexity of 780 and an annual modified duration of 25.00. C A \= C V × 1 0 0 × ( Δ y ) 2 where: C V \= Bond’s convexity Δ y \= Change of yield \\begin{aligned} &CA = CV \\times 100 \\times (\\Delta y)^2 \\\\ &\\textbf{where:} \\\\ &CV=\\text{Bond's convexity} \\\\ &\\Delta y=\\text{Change of yield} \\\\ \\end{aligned} ​CA\=CV×100×(Δy)2where:CV\=Bond’s convexityΔy\=Change of yield​
Convexity refers to the non-linear change in the price of an output given a change in the price or rate of an underlying variable. Because the estimated price change using duration may not be accurate for a large change in yield due to the convex nature of the yield curve, convexity helps to approximate the change in price that is not captured or explained by duration. Thus, it's the first derivative of the equation for the duration and the second derivative of the equation for the price-yield function or the function for change in bond prices following a change in interest rates.

Convexity Adjustment

A coupon bond is a debt obligation with coupons attached that represent semiannual interest payments, also known as a "bearer bond." 

A coupon bond, also referred to as a bearer bond or bond coupon, is a debt obligation with coupons attached that represent semiannual interest payments. A coupon bond, also referred to as a bearer bond or bond coupon, is a debt obligation with coupons attached that represent semiannual interest payments. If an investor purchases a $1,000 ABC Company coupon bond and the coupon rate is 5%, the issuer provides the investor with a 5% interest every year. For the investor to claim his interest on the bond, he simply takes the corresponding coupon from the provided bond certificate and gives it to an agent of the issuing institution. Although coupon bonds—which are sometimes called bearer bonds—are rare, they offer a simple way for an investor to collect on earned interest.

Coupon Bond

A covered bond is a debt security that is created from public sector loans or mortgage loans that are backed by a separate group of assets.

A covered bond is a package of loans that were issued by banks and then sold to a financial institution for resale. The individual loans that make up the package remain on the books of the banks that issued them, serving as a collateral pool and conveying an additional layer of security for holders of the covered bonds. Therefore, even if the institution becomes insolvent, investors holding the bonds may still receive their scheduled interest payments from the underlying assets of the bonds, as well as the principal at the bond’s maturity. European banks have expressed interest in entering the U.S. market with euro-based covered bonds. A covered bond is a package of loans that were issued by banks and then sold to a financial institution for resale.

Covered Bond

Credit money is value created from any future monetary claim against an individual that can be used to buy goods and services.

Credit money is monetary value created as the result of some future obligation or claim. There are many forms of credit money, such as IOUs, bonds and money markets. In the modern fractional reserve banking system, commercial banks are able to create credit money by issuing loans in greater amounts than the reserves they hold in their vaults. This form of value obligation - i.e. I owe you X - is essentially credit money as soon as that obligation can be transferred to somebody else in kind. The U.S. capital markets are the largest worldwide, with the U.S. equities market being 2.4x and the U.S. bond markets being 1.6x the size of the runner-up, the European Union.

Credit Money

The credit market is where investors buy bonds and other credit-related securities. It is also where governments and corporations raise funds.

Credit market refers to the market through which companies and governments issue debt to investors, such as investment-grade bonds, junk bonds, and short-term commercial paper. Analysts also look at the spread between the interest rates on Treasury bonds and corporate bonds, including investment-grade bonds and junk bonds. Credit market refers to the market through which companies and governments issue debt to investors, such as investment-grade bonds, junk bonds, and short-term commercial paper. Sometimes called the debt market, the credit market also includes debt offerings, such as notes and securitized obligations, including collateralized debt obligations (CDOs), mortgage-backed securities, and credit default swaps (CDS). While the credit market gives investors a chance to invest in corporate or consumer debt, the equity market gives investors a chance to invest in the equity of a company.

Credit Market  and Examples

Cum warrant, Latin for "with warrant," refers to a security where the buyer is entitled to the warrant even though it was declared prior to purchase.

Cum warrant, Latin for "with warrant," refers to a security where the buyer is entitled to the warrant even though it was declared prior to purchase. Like other cum-warrant bonds, these securities attracted investors who wish to receive an income stream from bond interest payments and participate in the potential upside in the equity of the company if the stock price surpasses the warrant exercise price in the future. A cum warrant is similar to convertible debt, but when the holder exercises the warrant, they retain ownership of the bond, whereas when they exercise convertible debt, the bonds are exchanged for stocks. A cum warrant is similar to convertible debt, but when the holder exercises the warrant, they retain ownership of the bond, whereas when they exercise convertible debt, the bonds are exchanged for stocks. A bond cum warrant has an attached warrant that allows the holder to acquire shares of the issuing company at a specific price and within a specific time frame, usually lasting a few to several years.

Cum Warrant

A debt/equity swap is a transaction in which a company or individual exchanges debt owed for something valuable such as stock; such transactions are often used by entities facing bankruptcy.

A debt/equity swap is a transaction in which the obligations or debts of a company or individual are exchanged for something of value, namely, equity. In a bankruptcy case, the debt holder is required to make the debt/equity swap, but in other cases, the debt holder may opt to make the swap, provided the offering is a financially favorable one. In other cases, businesses have to maintain certain debt/equity ratios and invite debt holders to swap their debts for equity if the company helps to adjust that balance. A debt/equity swap is a refinancing deal in which a debt holder gets an equity position in exchange for the cancellation of the debt. This is a debt-for-equity swap in which the company has exchanged its debt holdings for equity ownership by two lenders.

Debt/Equity Swap

The discount yield is a measure of a bond's percentage return used to calculate the yield on short-term bonds and treasury bills sold at a discount.

The discount yield is a way of calculating a bond's return when it is sold at a discount to its face value, expressed as a percentage. Bonds that use bond accretion can be issued a par value, at a discount or a premium, and accretion is used to move the discount amount into bond income over the remaining life of the bond. Securities that are sold at a discount use the discount yield to calculate the investor's rate of return, and this method is different than bond accretion. Discount yield computes a discount bond investor's return on investment (ROI) if the bond is held until maturity. Bond accretion means that the $80 discount is posted to bond income over the 10-year life, and an investor can use a straight-line method or the effective interest rate method.

What Is Discount Yield?

An embedded option is a component of a financial security that gives the issuer or the holder the right to take a specified action in the future.

An embedded option is a feature of a financial instrument that lets issuers or holders take specified actions against the other party at some future time. Just like callable bonds, the bond indenture specifically details the circumstances a bondholder can utilize for the early redemption of the bond or put the bonds back to the issuer.
Putable bond buyers make some concessions in price or yield (the embedded price of the put) to allow them to close out the bond agreements if rates rise, and then invest or loan their proceeds in higher-yielding agreements. Furthermore, embedded options customarily limit a security's potential price appreciation, because when market circumstances change, the price of the affected security may be capped or bound by a specific conversion rate or call price. The option-adjusted spread (OAS) is the measurement of the spread of a fixed-income security rate and the risk-free rate of return, which is then adjusted to take into account an embedded option. Depending on the type of option, the option price is either added to or subtracted from the price of the straight bond that has no options attached.

Embedded Option

Excess cash flow is additional inflows of funds that are carved out to be repaid to lenders.

Excess cash flow is a term used in loan agreements or bond indentures and refers to the portion of cash flows of a company that are required to be repaid to a lender. Exceptions to excess cash flow might be taxes paid, cash used to generate new business, but these cash outlays would be included in the free cash flow calculation. If excess cash flow is generated, a lender might require a payment that is 100%, 75%, or 50% of the excess cash flow amount. The excess cash flow amount for a company is different than a company's free cash flow figure. If excess cash flow is generated, a lender might require a repayment that is all or some portion of the excess cash flow amount.

Excess Cash Flow

A fallen angel is a bond that had an investment-grade rating but has been reduced to junk bond status due to the issuer's weakened condition.

A fallen angel, in the investing world, is a bond that was initially given an investment-grade rating but has since been reduced to junk bond status. Municipal and sovereign debt issuers may also see their investment-grade bonds downgraded to junk status due to a combination of stagnant or declining tax revenues and increasing levels of debt. An oil company that has reported sustained losses over several quarters due to falling oil prices may see its investment-grade bonds downgraded to junk status due to the company's increased risk of default. As a result, fallen angel bonds can present value within the high-yield category but only if the issuer appears to have a reasonable chance of recovering from the conditions that caused the downgrade. A fallen angel, in the investing world, is a bond that was initially given an investment-grade rating but has since been reduced to junk bond status.

Fallen Angel

A foreign currency convertible bond (FCCB) is a type of convertible bond issued in a currency different than the issuer's domestic currency.

A foreign currency convertible bond (FCCB) is a type of convertible bond issued in a currency different than the issuer's domestic currency. A foreign currency convertible bond (FCCB) is a convertible bond that is issued in a foreign currency, which means the principal repayment and periodic coupon payments will be made in a foreign currency. A foreign currency convertible bond (FCCB) is a type of convertible bond issued in a currency different than the issuer's domestic currency. A foreign currency convertible bond (FCCB) is a type of bond that is issued in a currency other than the issuer's home currency. Due to the equity side of the bond, which adds value, the coupon payments on the bond are lower for the issuer than a straight coupon-bearing plain vanilla bond, thereby, reducing its debt-financing costs.

Foreign Currency Convertible Bond (FCCB)

A fixed-income style box provides a visual representation of the investment characteristics of fixed-income investments. They were created by Morningstar and are most commonly used for mutual funds.

A fixed-income style box provides a visual representation of the investment characteristics of fixed-income investments. The fixed-income style box uses interest-rate sensitivity and credit quality as the two primary characteristics for consideration, with the horizontal axis showing a fund’s maturity categories represented by short-term, intermediate-term, and long-term.
A fixed-income style box is made up of nine squares with the vertical and horizontal axis used for defining investment characteristics. With rates potentially on the rise in 2018, a fixed-income investor using style box investing to identify fixed-income investments may be interested in filtering for the top performing funds with limited interest rate sensitivity and high credit quality. A fixed-income style box is made up of nine squares with the vertical and horizontal axis used for defining investment characteristics to help investors evaluate a fixed income security or fund. A fixed-income style box provides a visual representation of the investment characteristics of fixed-income investments.

Fixed-Income Style Box

A general obligation (GO) bond is backed by the credit and "taxing power" of the issuing jurisdiction rather than the revenue from a given project.

A general obligation bond (GO bond) is a municipal bond backed solely by the credit and taxing power of the issuing jurisdiction rather than the revenue from a given project. A general obligation bond may either be a limited-tax general obligation pledge or an unlimited-tax general obligation pledge. With limited-tax general obligation pledges, governments can still use a part of already-levied property taxes, use another stream of income, or raise property taxes to an amount equating to existing debt service payments to answer its debt obligations. A limited-tax general obligation pledge asks the issuing local government to raise property taxes if necessary to meet existing debt service obligations. 1:30
A general obligation (GO) bond is secured by an issuing government's pledge to use all available resources — even tax revenues — to repay holders of the bond.

General Obligation (GO) Bond

Gilt-edged securities are high-grade investment bonds offered by governments and blue-chip companies as a means of borrowing money.

Gilt-edged securities are high-grade bonds issued by certain national governments and private organizations. Gilt-edged securities are high-grade investment bonds offered by governments and large corporations as a method of borrowing funds. Gilt-edged securities are high-grade bonds issued by certain national governments and private organizations. Gilt-edged securities refer to high-grade bonds that some national governments and private organizations issue in an effort to generate revenue. As an investment vehicle, this equates to high-grade securities with relatively low yields compared to riskier, below-investment-grade securities.

Gilt-Edged Securities

Gross yield is the return on an investment before taxes and expenses. It is calculated as return prior to taxes and expenses divided by current price.

The gross yield of an investment is its profit before taxes and expenses are deducted. Common bond yield terms include nominal yield, current yield, and yield to maturity. Other commonly-used measurements of yield include nominal yield, current yield, and yield to maturity. Gross yield is a measurement used for many investments including real estate, fixed-income investments, and mutual fund investments. Mutual fund yields are reported in two ways:
Dividend yields are expressed as an annual percentage of a fund’s portfolio income, also based on the net income received after the fund's associated expenses have been paid.

Gross Yield

The letter H is a NASDAQ exchange fifth-letter identifier for a company's stock symbol when it sells shares with a second convertible bond.

Nasdaq's List of Fifth Character Symbol Suffixes

The letter H appears as the last character in the symbols of certain stocks traded on the NASDAQ stock exchange. Other common fifth-letter identifiers include A (class A shares), B (class B shares), G (first convertible bond), K (non-voting shares), Q (bankruptcy), W (warrants), and Z for miscellaneous. Other common fifth-letter identifiers are A (class A shares), B (class B shares), G (first convertible bond), K (non-voting shares), Q (bankruptcy), W (warrants), and Z for miscellaneous. H, the last character on some NASDAQ stock symbols, is one of the 'fifth-letter identifiers' attached to the issuing company's stock when it sells securities with a second convertible bond. The National Association of Securities Dealers Automated Quotations, or NASDAQ, is a global electronic marketplace for buying and selling securities as well as the benchmark index for U.S. technology stocks.
NASDAQ was created by the National Association of Securities Dealers (NASD) to provide investors and traders with a computerized, speedy, and transparent system.

A half stock is sold with a value that is roughly half of what is considered to be standard. Half stock can be either common or preferred and, other than the reduced par value, acts as a regular share of stock.

A half stock is a security sold with a par value that is 50% of what is considered to be the standard price. The half stock is still considered to be preferred stock and is still ranked higher on the priority ladder than common stock, but because it is half stock, it will pay out a lesser dividend to shareholders and give the owners fewer claims on assets should the company need to declare bankruptcy and liquidate. Half stock can be either common stock or preferred stock and, other than the reduced par value, acts as a regular share of stock. The valuation of a share of common stock is often the same for both a regular share of stock and half stock, as much of the stock's value is related to growth potential. Nonetheless, a half stock is most often preferred stock, rather than common stock, and usually involves the payment of a dividend.

Half Stock

The implied repo rate is calculated by owning a bond and shorting a future or forward on that bond.

The implied repo rate is the rate of return that can be earned by simultaneously selling a bond futures or forward contract, and then buying that actual bond of equal amount in the cash market using borrowed money. The implied repo rate is the rate of return that can be earned by simultaneously selling a bond futures or forward contract, and then buying that actual bond of equal amount in the cash market using borrowed money. The implied repo rate comes from the reverse repo market, which has similar gain/loss variables as the implied repo rate, and provides a function similar to that of a traditional interest rate. The repo rate refers to the amount earned, calculated as net profit, from the processing of selling a bond futures contract, or other issue, and subsequently using the borrowed funds to buy a bond of the same value with delivery taking place on the associated settlement date. An implied repo rate is the rate of return that can be earned by owning a bond and simultaneously shorting a futures or forward contract against it.

Implied Repo Rate

Imputed interest describes interest the IRS considers paid for tax purposes, even though the debtor has made no interest payments. 

The IRS uses imputed interest to collect tax revenues on loans or securities that pay little or no interest. The IRS uses an accretive method when calculating the imputed interest on Treasury bonds and has applicable federal rates that set a minimum interest rate in relation to imputed interest and original issue discount rules. The AFR determines the lowest interest that one may charge on loans below a specific interest rate threshold and considers the amount of potential income generated from the interest rate as imputed income. The IRS uses imputed interest to collect tax revenues on loans or securities that pay little or no interest. Because the adjusted purchase price of a zero-coupon bond is initially equal to its purchase price when issued, the accrued interest gained over each accrual period adds to the adjusted purchase price.

Imputed Interest

An income investment company manages portfolios of income-generating securities for its clients.

An income investment company is an asset management firm focused on generating income for its clients, often through a portfolio that emphasizes income-generating securities. An income investment company is an asset management firm focused on generating income for its clients, often through a portfolio that emphasizes income-generating securities. An income investment company is an asset management firm focused on generating income for its clients, often through a portfolio that emphasizes income-generating securities. To invest in income investment companies, investors can choose among mutual funds, exchange-traded funds (ETFs), real estate investment trusts (REITs), business development companies (BDCs), and master limited partnerships (MLPs). Dividend yield and the relative growth of dividend per share (DPS) to earnings per share (EPS) are two key metrics that an income investment company uses to value a specific security prior to adding it to the portfolio.

Income Investment Company

The Japan Credit Rating Agency (JCR) is a key credit rating agency in Japan, providing credit ratings and research for both Japanese and foreign bond issuers. 

Seven Credit Rating Agencies Register with SEC as Nationally Recognized Statistical Rating Organizations

The Japan Credit Rating Agency (JCR) is a Japanese financial services company that provides credit ratings on the corporate debt of Japanese companies and foreign bond issuers. JCR has two rating scales that it uses to rate debt issuances: a long-term rating scale and a short-term rating scale. The Japan Credit Rating Agency (JCR) is Japan's primary credit rating agency, providing ratings on corporate and financial bond issuers in Japan. JCR uses two rating scales; one long term and one short term, with the long-term rating scale functioning similarly to those of S&P's and Moody's. The long-term rating scale is similar to that of the rating scales used by western credit rating agencies, such as S&P and Moody's.

Japan Credit Rating Agency (JCR)

The Loan Credit Default Swap Index (Markit LCDX) is an index of loan-only credit default swaps (CDS) covering 100 individual companies in North America.

The Loan Credit Default Swap Index (Markit LCDX) is a specialized index of loan-only credit default swaps (CDS) covering 100 North American companies with unsecured debt trading in broad secondary markets. The Loan Credit Default Swap Index (Markit LCDX) is a specialized index of loan-only credit default swaps (CDS) that cover 100 individual North American companies with unsecured debt trading in the broad secondary markets. The Loan Credit Default Swap Index (Markit LCDX) is a specialized index of loan-only credit default swaps (CDS) covering 100 North American companies with unsecured debt trading in broad secondary markets. LCDX is traded over the counter and is managed by a consortium of large investment banks, which provide liquidity and assist in pricing the individual credit default swaps. The LCDX is traded over-the-counter, and several large investment banks manage it, provide liquidity, and assist in pricing individual credit default swaps.

Loan Credit Default Swap Index (Markit LCDX)

A leveraged loan index (LLI) tracks the performance of leveraged loans as benchmark.

A leveraged loan index (LLI) is a market-weighted index that tracks the performance of institutional leveraged loans. An LLI serves as a benchmark for performance measurement of fund managers dedicated to leveraged loan investment strategies and as a basis for passive investment vehicles such as exchange traded funds (ETF).
For example, the Invesco Senior Loan Portfolio (ticker: BKLN) is based on the S&P/LSTA U.S. Leveraged Loan 100 Index. A leveraged loan index (LLI) is a market-weighted index that tracks the performance of institutional leveraged loans. According to Invesco, the asset management company that offers BKLN, the fund invests at least 80% of its total assets in the constituent securities that make up the leveraged loan index, which tracks the market-weighted performance of the component loans based on market weightings, spreads, and interest payments. A leveraged loan index (LLI) tracks the performance of institutional leveraged loans on a market-weighted basis.

Leveraged Loan Index (LLI)

A Long Inverse Floating Exempt Receipt (LIFER) is a floating rate debt security traded among qualified institutional buyers (QIBs).

A Long Inverse Floating Debt Receipt (LIFER) is a floating rate debt security traded among qualified institutional buyers (QIBs) and originally created by the German bank Deutsche Bank. A long inverse floating debt receipt pays a yield equal to a fixed base interest rate minus the floating rate of a benchmark (such as LIBOR+). An inverse floater is a debt instrument whose coupon rate moves in the opposite direction of its benchmark interest rate. Another way to use an inverse floater is if one expects rates to remain the same over a prolonged period, holding a product such as a LIFER would typically outperform the regular (non-inverse) version of the floating note. are considered more volatile than vanilla floating-rate notes, as the fixed rate of the contract will be set higher than the typical ranges of the (variable) benchmark, and often by a larger margin than the benchmark is from zero.

Long Inverse Floating Exempt Receipt (LIFER)

A maturity by maturity bidding (MBM) is a bond auction that allows bidders (who are underwriters) to submit bids for selected maturities in its issue.

Maturity by maturity bidding refers to a bond auction mechanism that allows bidders (who are often the issue's underwriters) to submit bids for selected maturities in the issue, rather than requiring buyers to bid for the entire issue on an all-or-none (AON) basis. Maturity by maturity bidding refers to a bond auction mechanism that allows bidders (who are often the issue's underwriters) to submit bids for selected maturities in the issue, rather than requiring buyers to bid for the entire issue on an all-or-none (AON) basis. If, however, a municipal bond issue contains bonds of differing maturities (e.g., 1 year, 3 year, and 5-year notes), a maturity by maturity bidding mechanism can allow certain bidders to identify those maturities only that they would bid for. Maturity by maturity (MBM) bidding lets bond buyers select parts of a bond issue to purchase based on maturity. in maturity-by-maturity bidding, a bidder may bid on less than the entire debt offering that is up for sale.

Maturity by Maturity Bidding (MBM)

The Mumbai Interbank Offer Rate (MIBOR) is the interest rate at which banks can borrow funds from other banks in the Indian interbank market.

The Mumbai Interbank Offer Rate (MIBOR) is one iteration of India's interbank rate, which is the rate of interest charged by a bank on a short-term loan to another bank. The MIBID rate would be lower than the interest rate offered to those wanting to borrow funds, known as Mumbai Interbank Offered Rate (MIBOR), one iteration of an interbank rate, which is the rate of interest charged by a bank on a short-term loan to another bank. The Mumbai Interbank Offer Rate (MIBOR) is one iteration of India's interbank rate, which is the rate of interest charged by a bank on a short-term loan to another bank. MIBOR is used in conjunction with the Mumbai interbank bid and forward rates (MIBID and MIFOR) by the central bank of India to set short-term monetary policy. The Mumbai InterBank Overnight Rate, or MIBOR, is the overnight lending offered rate for Indian commercial banks.

Mumbai Interbank Offered Rate (MIBOR)

Partial redemption is the redemption of only a portion of a callable security or issue.

A partial redemption is the retirement or payment of a portion of a callable (or redeemable) security before its maturity date. According to Financial Industry Regulatory Authority (FINRA) Rule 4340, a financial institution that controls callable bonds on behalf of clients must establish and make available on its website procedures by which it will allocate among its customers, on a fair and impartial basis, the securities to be redeemed or selected as called in the event of a partial redemption. The sinking fund is the annual reserve in which an issuer is required to make periodic deposits that will be used to pay the costs of calling bonds in accordance with the mandatory redemption schedule in the bond contract or to purchase bonds in the open market. Callable bonds are typical of corporate and municipal issuers who wish to have the option to pay off their debt if interest rates drop below the rates on their outstanding bonds. A mandatory redemption schedule may require the issuer to redeem 70% of bonds ten years from the issue date, for example.

Partial Redemption

A purchase fund is a feature of some bond indentures and preferred stock that requires the issuer to make an effort to purchase a specified amount of securities if they fall below a stipulated price.

A purchase fund is a feature of some bond indentures and preferred stock that requires the issuer to make an effort to purchase a specified amount of securities if they fall below a stipulated price (usually par value).
Par value is a term that often describes a bond, but can also apply to a stock. A purchase fund can benefit an investor in that if the fund falls below par value, the company has to pay par value to repurchase the bonds from the investor. A purchase fund is a feature of some bond indentures and preferred stock that requires the issuer to make an effort to purchase a specified amount of securities if they fall below a stipulated price (usually par value).
Par value is a term that often describes a bond, but can also apply to a stock. This type of fund can be beneficial to an investor in that if the fund is trading below par value, the company has to pay par value to repurchase the bonds from the investors. The purchase fund can be an advantage to investors if the fund is trading below par value because the company must pay par to repurchase the bonds.

Purchase Fund

Companies such as Moody's or Standard & Poor's, that rate debt and preferred stock issues for safety of payment of principal, interest or dividends. 

Ratings range from AAA or Aaa (the highest) to C or D, which represents a company that has already defaulted. ratings indicate that a bond has significant speculative characteristics, where ‘BB' indicates the least speculative, and ‘C' the most.
**D**: Debt obligation with a 'D' are in default or in breach of an imputed promise. An obligation rated 'BBB' shows adequate protection measures, but adverse economic conditions are more likely to weaken the obligor's capacity to meet its financial commitments, than higher rated issues. **Seniority**: As some bondholders are paid before others, if the issuing entity runs out of cash, seniority measures whether a given bond is likely default, depending on its ranking on the pecking order.
The S&P Global Ratings Designations and What they Indicate **Recoverability**: a measure indicating how easily a company, government, or other bond-issuing entity would be able to cover any outstanding debt—solely with the extra cash it has overseas, should entity go into default.

Ratings Service

The Series EE Bond is a non-marketable, interest-bearing savings bond issued by the U.S. government and is guaranteed to at least double in value.

The Series EE Bond (often referred to as a "Patriot Bond") is a non-marketable, interest-bearing U.S. government savings bond. Financial institutions no longer issue Series EE bonds in paper form, but the paper Patriot Bonds can still be cashed or converted into electronic bonds. Series EE Bonds are interest-bearing U.S. government savings bonds guaranteed to at least double in value over their typical 20-year initial terms. Along with the Series I bond, the Series EE bond is one of the two types of savings bonds issued by the US Treasury. Some Series EE bonds have total interest-paying lives that extend beyond the original maturity date, up to 30 years from issuance.

Series EE Bond

Series I bond is a non-marketable, interest-bearing U.S. government savings bond that earns a combined fixed interest and variable inflation rate (adjusted semiannually).

Using Your Income Tax Refund to Save by Buying U.S. Savings Bonds

Table of Contents
What Is a Series I Bond?
Understanding Series I Bonds
How to Calculate Series I Bonds
Special Considerations
Series I Bonds and Interest Income The two types of interest that a Series I bond earns are an interest rate that is fixed for the life of the bond and an inflation rate that is adjusted each May and November based on changes in the non-seasonally adjusted consumer price index for all urban consumers (CPI-U). The formula for calculating the composite rate is given as:
> Composite rate = fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate) A series I bond is a non-marketable, interest-bearing U.S. government savings bond that earns a combined fixed interest rate and variable inflation rate (adjusted semiannually). For example, if the fixed rate is 0.30% and the semiannual inflation is -2.30%, the composite rate on the bond will be:
\= 0.003 + (2 x -0.023) + (0.003 x -0.023)
\= 0.003 - 0.046 - 0.000069
\= -0.04307, or -4.31%.
However, since it is negative in this case, the composite ratio will be adjusted to 0%.
Series I bonds are considered low risk since they are backed by the full faith and credit of the U.S. government and their redemption value cannot decline.

Series I Bond

Usually calculated based on a fund’s average seven-day distribution, the seven-day yield is a measure of the annualized yield for a mutual fund.

The seven-day yield is a standard measure of the annualized yield for a money market mutual fund. Since money market funds tend to be very low risk, the higher the seven-day yield the better.
The seven-day yield is most often calculated for money market funds. Investors should be cautious of seven-day yield calculations since a fund’s seven-day yield can sometimes vary with distributions if an average is not used. The seven-day yield is a standard measure of the annualized yield for a money market mutual fund. The seven-day yield is a method for estimating the annualized yield of a money market fund.

Seven-Day Yield

A shadow rating is a credit rating handed out unofficially by a rating agency.

The option value of a shadow rating is clear, and after a credit agency vets the issuer or potential debt issue, the issuer will have a better understanding of what is necessary to achieve a certain desired rating, whether in how the company generates cash flows or how to structure a debt offering. A shadow rating in an unofficial rating given to a bond or an issuing party by a credit agency, but without any public announcement of the rating. A shadow rating is issued by a credit rating agency to an issuer, but in an unofficial manner and without public announcement. Investors who may be interested in purchasing debt (sovereign bonds, for example) that has no official credit rating can integrate the shadow rating in its investment decision process.

What Is a Shadow Rating?

A sinkable bond is a bond issue backed by a sinking fund, that sets aside money to ensure investors that principal and interest payments will be made. 

A sinkable bond is a type of debt that is backed by a fund set aside by the issuer. Because sinkable bonds typically have shorter durations than their maturity dates, investors may calculate a bond’s yield to average life when determining whether to purchase a sinkable bond. From the viewpoint of the corporations and municipalities that issue them, an advantage of sinkable bonds is that the money can be repaid entirely or in part if interest rates fall below the nominal rate of the bond. The yield to average life is also important when bonds with sinking funds are trading below par, since repurchasing the bonds gives a bit of price stability. Because the sinking fund adds stability to the repayment process, the ratings agencies rate the bonds as AAA and reduce the interest rate from 6.3% to 6%.

Sinkable Bond

A sovereign bond is a debt security issued by a national government used for government spending.

A sovereign bond is a debt security issued by a national government to raise money for financing government programs, paying down old debt, paying interest on current debt, and any other government spending needs. A simple way to invest in foreign sovereign bonds is through purchasing shares in foreign government bond exchange-traded funds (ETFs).
A sovereign bond functions as a regular bond in that the purchaser of the bond receives periodic interest payments from the issuer, in this case, the government, and receives the repayment of the bond's face value when the bond matures.
Like any bond, the interest rate paid, or yield, depends on the risk profile of the issuer. A sovereign bond is a debt security issued by a national government to raise money for financing government programs, paying down old debt, paying interest on current debt, and any other government spending needs. A list of popular foreign sovereign bond ETFs is as follows:
iShares International Treasury Bond ETF (IGOV)
SPDR Barclays International Treasury Bond ETF (BWX)
SPDR Barclays Capital Short Term International Treasury Bond ETF (BWZ)
Franklin Liberty International Aggregate Bond ETF (FLIA) The reality is that less-developed countries have difficulty issuing sovereign bonds denominated in their currency, and thus have to assume debt denominated in a foreign currency.

Sovereign Bond

A stable value fund is a bond portfolio that is insured against a decline in yield or loss of capital. It is used in some retirement plans.

A stable value fund is a portfolio of bonds that are insured to protect the investor against a decline in yield or a loss of capital. A stable value fund may also be an appealing alternative to lower-yielding vehicles such as money market funds for the portion of an investor's portfolio that is used to counter market volatility. A stable value fund is inherently as safe an investment as a money market fund. While many other investments drop in value, the owner of a stable bond fund continues to receive the agreed-upon interest payments and never loses principal regardless of the state of the economy. A stable value fund is a portfolio of bonds that are insured to protect the investor against a decline in yield or a loss of capital.

Stable Value Fund

A step-up bond is a bond that pays an initial interest rate but has a feature whereby set rate increases occur at periodic intervals.

Treasury Inflation-Protected Securities (TIPS)

Table of Contents
What Is a Step-Up Bond?
How Step-Up Bonds Work Step-Up Bond Rate Increases
Benefits of Step-Up Bonds
Risks of Step-Up Bonds
Example of a Step-Up Bond
A step-up bond is a bond that pays a lower initial interest rate but includes a feature that allows for rate increases at periodic intervals. A step-up bond provides investors with the benefits of fixed-income securities while keeping up with rising interest rates.
However, the initial rate offered on a step-up bond could be lower than the rates offered in other fixed-income investments. Because the coupon payment increases over the life of the bond, a step-up bond lets investors take advantage of the stability of bond interest payments while benefiting from increases in the coupon rate. Conversely, a step-up bond pays a lower rate in the early years, and its rate increases over time so that investors receive a higher coupon rate as the maturity date approaches.

Step-Up Bond

Subprime credit refers to loans, usually offered at rates above the prime rate, made to a borrower with a low credit rating,

Subprime credit refers to loans, usually offered at rates well above the prime rate, made to borrowers with poor credit ratings. During the housing boom in the early 2000s, lending standards on subprime mortgages were relaxed, with NINJA loans being made to borrowers with no income, no job or assets. When the bubble burst in 2007, the quantity of subprime credit in the financial markets contributed to the subprime meltdown and the subprime crisis, which triggered the Great Recession. Subprime credit is financed by repackaging subprime credit card debt, auto loans, business loans and mortgage into pools and selling them investors as asset-backed securities, like collateralized debt obligations (CDO) and mortgage-backed securities (MBS). Subprime credit is, often, the only type of loan available to borrowers with low credit ratings, high debt levels, a record of delinquency, defaults or bankruptcy, and without property or assets that can be used as collateral. Subprime credit is, often, the only type of loan available to borrowers with low credit ratings, high debt levels, a record of delinquency, defaults or bankruptcy, and without property or assets that can be used as collateral.

Subprime Credit

A sukuk is a bond-like financial product that complies with Islamic finance (sharia) rules.

A _sukuk_ is an Islamic financial certificate, similar to a bond in Western finance, that complies with Islamic religious law commonly known as Sharia. Both sukuk and bonds provide investors with payment streams, however income derived from a sukuk cannot be speculative that would make it no longer _halal._
With the rise of Islamic finance, sukuk have become extremely popular since 2000, when the first such products were issued in Malaysia. Since the traditional Western interest-paying bond structure is not permissible, the issuer of a sukuk essentially sells an investor group a certificate, and then uses the proceeds to purchase an asset that the investor group has direct partial ownership interest in. To circumvent this, sukuk were created in order to link the returns and cash flows of debt financing to a specific asset being purchased, effectively distributing the benefits of that asset. Sukuk and conventional bonds do share similar characteristics, but also have important key differences:
Similarities
Both provide investors with payment streams.
Bonds and sukuk are issued to investors and may be used to raise capital for a firm.

Sukuk

A super floater is a CMO tranche whose coupon rate is the leveraged reference interest rate, usually LIBOR, minus the fixed rate.

A super floater is a collateralized mortgage obligation (CMO) tranche whose coupon rate is the leveraged reference interest rate, usually LIBOR, minus the fixed rate (spread). If one-year LIBOR is 3%, the coupon rate would be 2 \* 3% - 4% = 2%.
If LIBOR rises to 4%, the coupon rate would be 2 \* 4% - 4% = 4%, even though the reference rate rose by only 1%.
All types of floating-rate tranches may be structured as planned amortization class (PAC), targeted amortization class (TAC)—which offer fixed principal payment schedules—companion tranches or sequential pay CMOs. A super floater is a collateralized mortgage obligation (CMO) tranche whose coupon rate is the leveraged reference interest rate, usually LIBOR, minus the fixed rate (spread). A super floater is a collateralized mortgage obligation (CMO) tranche whose coupon rate is the leveraged reference interest rate, usually LIBOR, minus the fixed rate (spread). Super floaters magnify changes in the reference interest rate, which is why they are often used to hedge interest rate risk in portfolios.

Super Floater

TIBOR, an acronym for Tokyo Interbank Offered Rate, is published by the Japanese Bankers Association every business day at 11:00 a.m. JST.

TIBOR is an acronym for Tokyo Interbank Offered Rate, which is the daily reference rate derived from interest rates that banks charge to lend funds to other banks in the Japanese interbank market. is published by the Japanese Bankers Association (JBA) every business day at 11:00 a.m. Japan Standard Time (JST) and no later than 12:35 p.m.
Two types of TIBOR rates are published—the European TIBOR rate and the Japanese Yen TIBOR rate. There are two types of TIBOR rates—the European TIBOR rate and the Japanese Yen TIBOR rate. JBATA calculates the JBA TIBOR as a prevailing market rate by using quotes for six different maturities (one week, one month, two months, three months, six months, and 12 months).
TIBOR The Japanese Yen TIBOR has been calculated and published publicly by the Japanese Bankers Association since Nov. 1995, while the Euroyen TIBOR rates have been published since March 1998.

TIBOR

The Trust Indenture Act (TIA) of 1939 is a federal law that prohibits bond issues, without a formal written agreement, fully disclosing the bond's specifics.

The Trust Indenture Act (TIA) of 1939 is a law that prohibited bond issues valued over $10 million from being offered for sale without a formal written agreement (an indenture). The Trust Indenture Act (TIA) of 1939 is a law that prohibits bond issues valued over $10 million (now updated to $50 million) from being offered for sale without a formal written agreement (an indenture). The Trust Indenture Act (TIA) of 1939 is a law that prohibited bond issues valued over $10 million from being offered for sale without a formal written agreement (an indenture). A trust indenture is a contract entered into by a bond issuer and an independent trustee to protect the interests of bondholders. A trust indenture is a contract entered into by a bond issuer and an independent trustee to protect the interests of bondholders.

Trust Indenture Act (TIA) of 1939

An upgrade refers to the positive change in an analyst's view of a particular security based primarily on that security's improving fundamentals.

An upgrade refers to the positive change in an analyst's outlook of a particular security's valuation based primarily on that security's improving fundamentals. Beyond an outright upgrade event, credit rating agencies and equity valuation shops both publish watchlist or similar lists indicating securities or companies prime for an upgrade (or downgrade). An upgrade refers to the positive change in an analyst's outlook of a particular security's valuation based primarily on that security's improving fundamentals. An upgrade refers to the positive change in an analyst's outlook of a particular security's valuation based primarily on that security's improving fundamentals. An upgrade to a specific security assigns it a higher ranking and is usually triggered by qualitative and quantitative information that contributes to an increase in the financial valuation of that security.

Upgrade

Yield maintenance is a prepayment premium that allows investors to attain the same yield as if the borrower made all scheduled interest payments.

Yield maintenance is a sort of prepayment penalty that allows investors to attain the same yield as if the borrower made all scheduled interest payments up until the maturity date. The formula for calculating a yield maintenance premium is: Yield Maintenance = Present Value of Remaining Payments on the Mortgage x (Interest Rate - Treasury Yield).
When a borrower obtains financing, either by issuing bonds or by taking out a loan (e.g., mortgage, auto loan, business loan, etc.), the lender is periodically paid interest as compensation for the use of their money for a period of time. The formula for calculating a yield maintenance premium is:
**Yield Maintenance = Present Value of Remaining Payments on the Mortgage x (Interest Rate - Treasury Yield)**
The Present Value factor in the formula can be calculated as (1 – (1+r)\-n/12)/r
where r = Treasury yield
n = number of months
For example, assume a borrower has a $60,000 balance remaining on a loan with 5% interest. It dictates that borrowers pay the rate differential between the loan interest rate and the prevailing market interest rate on the prepaid capital for the period remaining to loan maturity. Yield maintenance is a kind of prepayment fee that borrowers pay to lenders, or bond issuers to investors, to compensate for the loss of interest resulting from the prepayment of a loan or the calling in of a bond.

Yield Maintenance

Z-bond is often the last bond to mature and receives payment, which is the accrual of interest added to the principal, after all other bond classes.

Mortgage-Backed Securities and Collateralized Mortgage Obligations

Fannie Mae and Freddie Mac in Conservatorship: Frequently Asked Questions

A Z-bond, also known as an accrual bond, is often the last bond to mature. A Z-bond is a type of mortgage-backed security (MBS) and the last tranche of a collateralized mortgage obligation (CMO).
Z-Bonds are categorized as speculative investments and can be risky for investors.
A Z-bond is the last tranche of a collateralized mortgage obligation (CMO). Conversely, the inclusion of Z-bonds increases the confidence in the other tranches of the CMO, given that the Z-bonds payments can be applied to satisfy the payment obligations of the other tranches before the Z-bonds obligations. If a pool of borrowers all default on their mortgage payments, and those mortgages are packaged together into a single CMO, the investor holding a Z-bond for that CMO may lose money. A Z-bond, also known as an accrual bond, is often the last bond to mature.

Bonds

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