The term used to refer to regularly scheduled payments or prepayments of principal and of interest on mortgage securities.
Price equal to the face amount of a security; 100%.
Principal amount of bonds to be underwritten by each syndicate member.
One of two entities, in a traditional interest rate swap. In the municipal market a counterparty and a party can be a state or local government, a broker dealer, or a corporation.
The entity, usually a designated bank or the office of the treasurer of the issuer that pays the principal and interest of a bond.
The date that actual principal and interest payments are paid to the record owner of a security.
Pension Benefit Guarantee Corp. The PBGC is a guarantee fund, established by ERISA, which covers all defined benefit pension plans. Companies with a defined benefit plan must pay premiums into this fund according to the number of employees in the plan and the current ratio of assets to liabilities in the plan.
The individual, group or corporation named in the plan document as responsible for day to day operations. The plan sponsor is generally the plan administrator if no other entity is named.
The entity (generally the employer) responsible for establishing and maintaining the plan.
Companies that administer service and/or sell 401k plans. They are generally employed by the plan sponsor.
An investment’s return (usually total return), compared to a benchmark that is comparable to the risk level or investment objectives of the investment.
A floating-rate note with no stated maturity date.
Or “sequential-pay CMO.” The most basic type of CMO. 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.
A tranche or security that pays investors principal only and not interest. PO securities are priced at a deep discount from their face value
Shorthand reference to 1%. In the context of a “bond,” a “point” means $10, since a “bond” with this reference means $1,000 (no matter what the actual denominations of the bonds of the issue). An issue or a security that is “discounted two points” is quoted at 98% of its par value.
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.
The group of investments that an individual or institutional investor holds.
The net balance of outstanding purchases and sales held by a trader. The term can refer to a trader’s net balance in a particular security or market or in all the ones in which he is active.
Where the financing cost of a position is lower than the income received from it. Positive carry trades are often made in the currency market where the interest received by investors in one currency is higher than what has to be paid to borrow in another. Negative carry is when it costs more to finance a position than it earns.
An equity security that is junior to the issuing entity’s debt obligations but senior to common stock in the payment of dividends and the liquidation of assets. The dividend can be fixed or floating and is usually stated as a percentage of par value. Preferred stock usually has no voting rights and frequently has a mandatory or optional redemption provision.
The amount by which the price of a security exceeds its principal amount.
When the dollar price of a bond is above its face value, it is said to be selling at a premium. When the dollar price is below face value, it is said to be selling at a discount.
The unscheduled partial or complete repayment of the principal amount outstanding on a loan, such as a mortgage, before it is due.
The risk that principal repayment will occur earlier than scheduled, forcing the investor to receive principal sooner than anticipated and reinvested at lower prevailing rates. The measurement of prepayment risk is a key consideration for investors in mortgage- and asset-backed securities.
The current value of a future payment or stream of payments, given a specified interest rate; also referred to as a discount rate.
The dollar amount to be paid for a security, which may also be stated as a percentage of its face value or par in the case of debt securities. Bond prices are best reflected in their yields, which vary inversely with the dollar price. The price you pay for a bond is based on a host of variables, including interest rates, supply and demand, credit quality, maturity and call features, tax status, state of issuance, market events and the size of the transaction.
Price to book ratio is a comparison between a company’s market value and its book value. It can be calculated either dividing market capitalization by total book value or by dividing the share price by the book value per share. The ratio should be higher than one. If not it means that a company’s assets are valued by the market at less than their replacement value. This could mean that the shares are undervalued or that the company is facing very considerable problems.
A commercial bank’s stated reference rate for lending.
The face amount of a bond, exclusive of accrued interest and payable at maturity.
A sale and purchase of securities in which the dealer commits its own capital in effecting the transaction.
The negotiated offering of new securities directly to investors, without a public underwriting.
Proportional distribution to all holders of the same class, based on ownership.
Computer-based trading techniques based on the flow of trading and price levels, rather than on fundamental supply and demand factors. Program trading often aims to exploit arbitrage possibilities between particular securities.
Documents provided to investors who are considering investing in financial instruments such as stocks, shares, bonds, bond funds, investment trusts, etc. The prospectus details the investment’s objectives, the nature of the investment, past performance, information on the Investment Company or managers, etc. In the U.S., the Securities Exchange Commission (SEC) requires investment companies to issue and file with them a prospectus that explains the investment offer and provides other information that could help an individual investor decide whether the investment is appropriate.
A bond that gives the holder the right to require the issuer or the issuer’s agent to purchase the bonds at a price, usually at par, at some date or dates prior to the final stated maturity.
Put call parity refers to the principle of a static price relationship between the prices of a put option and a call option on the same underlying instrument with the same strike price and expiry date. If they are not the same then there is room for arbitrage. Put call parity applies only to European-style options which can be exercised only on expiration and not before. American-style options can be exercised at any time during the life of the contract.
A put option allows the holder of a bond to “put,” or present, the bond to an issuer (or trustee) and demand payment at a stated time before the final stated maturity of the bond.