A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

Accrued interest
The amount of interest that the buyer owes the seller of the security on the settlement date. (For example, if one holds a security for two months after the last coupon payment, the buyer owes two months' worth of interest at settlement. The buyer gets that money back when he or she receives the next coupon payment.)

Actual/365
The actual/365 day-count method is used primarily to calculate Treasury bond equivalent yields for U.S. Treasury bills, but also may be used to calculate foreign government bonds and floating-rate notes. (When calculating a fraction of the normal coupon period, the actual number of calendar days in the interest period is used as the number of days for which interest is paid, and 365 is used as the denominator).

Amortization
The reduction of debt through regular payments of principal and interest which pay off a loan by its maturity date.

Asset/Liability Management(ALM)
The structure of an organization’s balance sheet to address the changes in assets and liabilities, and the resultant effects on capital.

Asset-backed security
Structured financial products backed by assets such as student-loan, credit-card (nicknamed "plastic bonds") and auto-loan receivables (one type of which is called "Certificates for Automobile Receivables").

Average life
A measure of how long it takes, on average, for a security to repay its principal. For a Treasury note, no principal is repaid until maturity, so the average life equals the term to maturity. A sinking-fund bond or a mortgage pool, on the other hand, pays down principal at various times in its life, and in this case, average life may be significantly different from the time to final maturity.

Average yield
The market-weighted yield to maturity of the specified portfolio.

Basis point (b.p.)
A unit of measurement that is equal to .01 percent. 100 basis points = 1 percent. The term is commonly used in finance.

Benchmark
The performance of a predetermined set of securities, used for comparison purposes. Such sets may be based on published indexes or may be customized to suit an investment strategy.

Bond
Debt security that obligates the issuer to pay the holder interest during the term of the bond, with some exceptions, and the principal at or before maturity.

Callable security
Security that the issuer can redeem before maturity on a specific date or set of dates, at specific prices.

Certificate of deposit (CD)
A money-market instrument that is a receipt for funds deposited in a financial institution for a specific period of time and at a specified rate of interest.

Collateralized mortgage obligation
Also "CMO" or "CMO deal." A type of mortgage-backed security that is backed by mortgage pools, and that is documented and sold as a collection of separate bonds, which are called tranches. CMOs may reduce the uncertainties caused by mortgage prepayments by separating cash flows into a variety of tranches. Each tranche can have different prices, yields, expected maturities, expected prepayment speeds, and so on.

Coupon
The periodic interest payment on a security paid by the issuer to the holder. Coupon is quoted as an annual percentage of face amount.

CUSIP
Security ID number assigned by the American Bankers Association's Committee on Uniform Security Identification Procedures. Each security has it own unique nine-character CUSIP. (The first six numbers identify the organization issuing the security. The next two characters identify the issue itself. The last digit is a "check digit," which is used to test for transmission and data-entry errors. The check digit contains no identification information. Note: Privately-placed issues do not have CUSIPs. Medium-term notes may or may not have CUSIPs).

Delivery versus payment (DVP)
Delivery versus payment -- an industry standard control ensuring the owner is always in possession of either the security or the proceeds of the transaction. With DVP, payment for the security occurs simultaneous with the delivery of the security.

Dividend
A share of earnings distributed to shareholders of a credit union.

Effective Rate
Calculated yield on a debt instrument, which uses the purchase price of the security. The effective rate is determined by the price, the coupon rate, the time between interest payments, and the time until maturity.

Face amount
Also "face value," "nominal value" and "par value." The value of the security as it appears on the certificate or instrument. The face amount is the amount of principal due the bondholder at maturity. It is also the amount on which interest payments are calculated. For example, a bond with a 10% coupon and a face amount of $1,000 pays bondholders $100 a year.

Factor
For securities or mortgage pools in which some or all of the principal is paid down before the scheduled maturity, the ratio of the outstanding principal balance to the original principal balance. Calculated as current balance divided by original balance.

Federal Agency Securities
Also known as agencies, these securities are issued by an agency of the federal government such as the Federal Home Loan Bank System, The Government National Mortgage Association, and the Federal land Banks. Federal agency securities are exempt from registration with the Securities and Exchange Commission.

Federal Funds
Also known as Fed Funds or immediately available funds. Federal Funds are non-interest bearing deposits of a member institution held at Federal Reserve Banks that may be lent on an overnight or term basis. Federal Funds are primarily used to meet reserve requirements.

First coupon date
The first date after settlement on which a coupon is paid to the buyer.

Free Delivery
Delivery of securities with no required payment by the receiving party.

Frequency
Number of coupon installments paid annually. Zero-coupon bonds, which pay no coupons, have frequencies of zero.Corporate bonds typically pay interest twice a year (semi-annually). CMOs pay interest either monthly or quarterly, while mortgage pools pay once a month. Eurobonds often pay annually.

Interest rate of return, bond
The percentage increase in the value of a bond over the holding period that results from interest income, including: All coupon payments; All income earned by reinvesting coupon payments and proceeds, if any, from selling or redeeming the bond; Any change in accrued interest between the settlement date and the horizon date.

Issue date
The date on which a new security begins trading.

Issue price
The dollar value of a security when it first comes to the market. Issue prices are determined in three ways: by auction, as for Treasuries, by consensus, as in a private placement, and by the lead underwriter, who sets the yield.

Issued amount
Par or face amount of a security issued by a corporation, often stated in millions of dollars.

Issuer
An entity, such as a corporation or government agency, that creates a bond, mortgage-backed security, CMO, or other obligation, and promises to pay holders principal and/or interest according to the schedule described in the prospectus.

Last coupon date
The date on which the last coupon is paid prior to settlement. Although the issuer may pay a final coupon at settlement, that coupon is not considered the last coupon.

London Interbank Offered Rate (LIBOR)
The rate of interest that major international banks in London charge each other for borrowings. Many variable interest rates in the US are based on spreads off LIBOR.

Maturity
The date on which the unpaid principal balance of the security becomes due and payable. For corporate bonds without options, this date is stated in the prospectus. For bonds with options, the maturity date is affected by calls, puts, sinking-fund schedules etc. For mortgage pools and CMOs, the maturity date is the last date for which the investor can principal or interest. Note that, although maturity dates appear for mortgage generics, generics do not actually mature at any particular point. Therefore, these maturity dates are only approximate. However, they can be useful for creating approximate remaining terms during portfolio analyses.

Mortgage-backed Security
Also “MBS”. A security backed by mortgage pools. There are four basic types: mortgage pass-through security; collateralized mortgage obligation; mortgage-backed bond; stripped mortgage-backed security.

Net economic value (NEV)
A calculation to determine the risk that changing interest rates will place on a credit unions capital. NEV is intended to show how the economic values of both sides of the balance sheet will change in relation to one another as interest rates change. NEV serves to inform risk takers of what the stakes are before the adverse market changes occur.

Offering
A set of securities that a trader or portfolio manager wants to buy or sell.

Option-adjusted spread (OAS)
(1) The spread over an issuer's spot rate curve, developed as a measure of the yield spread that can be used to convert dollar differences between theoretical value and market prices. (2) The cost of the implied call embedded in an MBS, defined as additional basis-yield spread. When added to the base yield spread of an MBS without an operative call produces the option-adjusted spread.

Par Value
Face value of the bond. The value of the security as it appears on the certificate or instrument.

Par amount
Face value of the bond multiplied by the number of bonds held, in dollars. For example, if you purchase two bonds with face values of $1,000, the par amount is $2,000. Par amount is not the same as market value.

Paydown schedule
The timetable of principal redemptions for an asset-backed security.

Prepayment speed
Also called speed, the estimated rate at which mortgagors pay off their loans ahead of schedule, critical in assessing the value of mortgage pass-through securities.

Principal amount
Face amount of a security. The amount that the issuer must pay the holder at maturity.

Principal paydown
The amount of principal returned to the holder over the horizon period expressed as a percentage of par.

Repurchase agreements
An agreement under which a credit union sells securities and agrees to repurchase them within a specified time and for a specified amount.

Return
The amount earned on an investment over a period of time.

Reverse-repurchase agreement
The purchase of an asset with a simultaneous agreement to resell the asset on a given date at a specified price.

Safekeeping
The storage and protection of securities provided as a service by an institution serving as custodian.

Securities Safekeeping
The storage and protection of securities provided as a service by an institution serving as custodian.

Security
Instrument that signifies an ownership position in a corporation (a stock), a creditor relationship with a corporation or governmental body (a bond), or rights to ownership such as those represented by an option, subscription right, or subscription warrant.

Settlement
A transfer of funds between two parties in cash, or on the books of a mutual depository institution, to complete one or more prior transactions, made subject to final accounting. Also involves the process which allows a buyer of a security to take ownership and seller to receive funds.

Settlement date
Date on which cash payments for purchases are due and for which accrued interest and price/yield relationships are computed as reflected on the federal reserve bank books. As per SEC Rule 15c6-1(b) and as of June 7, 1995, market conventions for settlement dates are: U.S. government Treasury bills, notes, bonds, and zeros--1 business day after order; Agency MTNs, debentures, and zeros--1 business day after order; Corporate MTNs, investment-grade securities, and high-yield securities--3 business days after order; CMOs and REMICs, agency issued or agency-backed--5 business days after order; Private-label CMOs--5 business days at issuance, 3 business days thereafter; Asset-backed securities--3 business days after order; Mortgage pools and generics--by PSA settlement class.

Settlement price
Expected valuation for the selected security on the settlement date.

Spread
In general, the difference between two interest rates or two prices. Spread may apply to the difference between the bid and ask price of a security, the yields on or prices of different securities, or the yield on or prices of similar securities in two different markets.

Spread to call
The difference between the yield to call of a security and the nearest benchmark treasury yield at the call date of the security.

Total rate of return
For a particular horizon period, the sum of coupon income, retired principal, reinvestment income, and the change in the market value of a bond, divided by the initial price and expressed as a percentage. Also called "total return" and "horizon return."

Trade date
The date on which a security buy or sell transaction actually occurs or could occur. Generally, today's date unless the market is closed.

Treasury bills (T-bills)
Short-term U.S. Treasury securities issued in minimum denominations of $10,000 and usually having maturities of three, six, or 12 months.

Treasury bond
Long-term U.S. Treasury securities having maturities of more than 10 years and minimum denominations of $1,000. Interest is calculated on an actual/365 day-count basis and quoted as a percentage of par to the nearest 1/32.

Treasury note
Intermediate-term U.S. Treasury securities with maturities of one to 10 years and minimum denominations of $1,000. Interest is calculated on an actual/365 day-count basis and quoted as a percentage of par to the nearest 1/32.

Treasury securities
Interest-bearing or accrual obligations of the U.S. government, issued by the U.S. Treasury as a means of borrowing money to meet government expenditures not covered by tax revenues.

Value date
The agreed payment date is generally two business days after the day the transaction is originated. To be an eligible value date, the settlement date must be a business day in the countries of the currencies being traded. Due to time zone differences, it is infeasible to have same-day value dates when dealing with overseas transactions. Typically, the two-day settlement date is the value date.

Weighted-Average Coupon
Abbreviated "WAC." The weighted average of the gross coupons for the mortgages underlying the pool as of the pool issue date, with the balance of each mortgage used as the weighting factor. The WAC is calculated by multiplying the gross coupon of each mortgage by the pool's remaining balance, summing the products, then dividing the result by the pool's total remaining balance. For a CMO, the WAC is the weighted average of the WACs of the pools used as collateral.

Weighted-Average Life
The average number of years that each dollar of unpaid principal due on the mortgage remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal paydowns.

Yield to call (YTC)
The percentage rate of a bond or note if the investor buys and holds the security until the call date. This yield is valid only if the security is called prior to maturity. Generally bonds are callable over several years and normally are called at a slight premium. The calculation of yield to call is based on coupon rate, length of time to call, and market price.

Years to Maturity (YTM)
The remaining term of a security, excluding any options or prepayment features.

Yield
The return on an investor’s capital investment.