Bond Terms – A Glossary Of Common Terms Used In Bonds Trading.

For those jumping into bonds trading or getting back into it, and you need a quick brush up on some of the bond terms, here's a convenient glossary of terms for you:

Ask (Asked Price) - The lowest round-lot price a broker will offer to sell a security.

Auction - The issuance of new Treasury bills, notes and bonds at stated intervals by the Federal Reserve Bank of the U.S.

Baby Bond - Bonds with a face value of less than $1,000.

Basis Points - 1/100th of a percentage point of yield.

Bid - The highest price offered for a security at a given time.

Bond - A debt security of a corporation or government. Usually refers to those with long maturity periods (10 to 30 years).

Bond Fund - Type of mutual fund that invests primarily in bonds.

Callable - A bond feature that permits the issuer to redeem the bond earlier than maturity.

Convexity - Measure of the curvature of the price-yield relationship of a fixed-income security.

Conversion Ratio - Issue price of a convertible divided by the conversion price.

Convertible (Bond) - A bond that allows the holder to convert to common stock.

Coupon - The annual interest percentage paid on a bond.

Current Yield - Coupon payment divided by market price.

CUSIP (The Committee on Uniform Security Identification Procedure) - Each type of security is assigned a unique CUSIP number.

Debenture - A debt issued by a corporation that is secured only by the issuing company's reputation, as distinguished from one backed by real assets.

Derivative Zeros - Zero coupon bonds created by stripping coupon and principal payments from a U.S. Treasury Security. (The coupon and bond are then sold separately.)

Discount - When the market price of a bond is lower than the original issue price (par).

Duration - A measure of the average time required to collect all payments of principal and interest.

Eurobonds - A bond issued in a currency other than that of the country of issue. Interest is usually non-taxed.

Face Value (par) - The amount that appears on the face of the certificate and that the issuer pays at maturity.

Hedge - To reduce the risk in one security by taking an offsetting position in another. (Hedging involves attempting to hold instruments whose prices tend to move in opposite directions.)

Intermediate-Term Bonds - Bonds with five to ten year maturity.

Maturity - The date on which a bond's principal is to be repaid.

Modified Duration - A measure of the sensitivity of a bond's price to changes in yields, shown as a number of years to maturity. (Example: If a bond has a modified duration of 4 years, for every 100 basis-point change in yield, the price changes by 4 percent in the opposite direction.)

Par (Face value) - the original issue price of a bond.

Subordinated Debenture - A debenture whose claim to interest and principal of the corporation comes after those of regular debentures and other debt.

Tax Exempt Bonds - Municipal securities whose interest is free from Federal income tax.

Treasury Bills - Bonds issued by the U.S. Treasury with maturities of 13, 26 or 52 weeks.

Treasury Bond - U.S. bonds with maturities of 10 to 30 years.

Treasury Note - U.S. Bonds with 1 to 10 year maturities.

Volatility - Relative measure of a security's price movement during a specific time.

Yield - The rate of return on an investment.

Yield Curve - A graph showing the general pattern of yields on bonds or other instrument.

Zero Coupon - A bond that pays zero interest. Sold at a discount to face value, the investor profits at maturity.

Bond Terms