English Vocabulary for Fixed Income Investments

Accrued Interest
The accumulated interest paid to a seller of a bond by the buyer. This payment will compensate the seller for holding the security between the last coupon date and the settlement date.

The process of incrementally reducing debt through installment payments of principal and interest.

The simultaneous sale and purchase of the same security in such a way as to take advantage of a price difference in the markets.

Interest or dividends that were not paid when due and are still owed.

Ask Price
The lowest price a seller is willing to accept.

Balloon Payment
A large principal repayment due in the later years of some serial bonds.

Bank Rate
The minimum interest rate at which the Bank of Canada will make short-term advances to the chartered banks and money-market dealers.

Basis Point
One one-hundredth of a percentage point is quoted as the most common measure of changes in bond yields

Bear Market
When the prices of bonds are decreasing and yields are rising.

Bid Price
The highest price a prospective buyer is willing to pay.

Bull Market
A period of rising bond prices and declining yields.

Issuer repays the principal of bond prior to the stated maturity date.

Assets pledged by a borrower until a loan is repaid.

A fee paid when the dealer acts as an agent in a securities transaction.

The amount of interest that will be paid on annual basis.

Current Yield
A simple measure of an investor's return on a fixed income investment calculated by dividing the annual interest by the market price.

A term used when a company fails to make a scheduled interest payment.

The difference between a bond's current market price and its face value or issue price.

A fixed income investment that is trading without accrued interest.

Initial Offering Price
New issues are usually sold at par or a slight discount.

Payment for borrowed funds expressed as a percentage.

The ability of the market to absorb the pressures of buying and selling without substantially affecting the price of the fixed income instrument.

Market Price
The price at which a fixed income investment trades either at par, a discount or a premium.

Par Value
The stated face value or principal amount of a fixed income investment which the issuer pays back at maturity.

When a fixed income investment is priced over its par value.

A legal document that describes securities being offered for sale to the public.

Security Types
refers to different categories of fixed income securities.

These categories include:

  • Bankers Acceptances
  • Canadas
  • Canada Agencies
  • Commercial Paper
  • Corporates
  • Municipals
  • Provincials
  • Residuals
  • Strips
  • Treasury Bills
  • Zeros

Settlement Day
The date on which a fixed income buyer must pay for the security plus any accrued interest.

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