Bond Dictionary in a Q & A style

Summary: A question and answer style to discovering the meaning of various terms in the world of bond investing.

Related Articles: Savings Bond Value, treasury risk management, Treasury bills (T-bills)


What is the Ask (Asked Price) of a bond?
The lowest round-lot price a broker will offer to sell a security.

What is a bond auction?
The issuance of new Treasury bills, notes and bonds at stated intervals by the Federal Reserve Bank of the U.S.

What is a baby bond?
Bond with a face value of less than $1,000.

What are the basis points for a bond?
1/100th of a percentage point of yield.

What is a bid?
The highest price offered for a security at a given time.

What is a bond?
A debt security of a corporation or government. Usually refers to those with long maturity periods (10 to 30 years).

What is a bond fund?
Type of mutual fund that invests primarily in bonds.

What does callable mean?
A bond feature that permits the issuer to redeem the bond earlier than maturity.

What is convexity?
Measure of the curvature of the price-yield relationship of a fixed-income security.

What is the conversion ratio?
Issue price of a convertible divided by the conversion price.

What is a convertible bond?
A bond that allows the holder to convert to common stock.

What is the coupon rate?
The annual interest percentage paid on a bond.

What is current yield?
Coupon payment divided by market price.

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

What is a 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.

What are 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.)

What is a discounted bond?
When the market price of a bond is lower than the original issue price (par).

What is a bond duration?
A measure of the average time required to collect all payments of principal and interest.

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

What is the face Value or par value of a bond?
The amount that appears on the face of the certificate and that the issuer pays at maturity.

What do you mean by hedging?
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.)

What are intermediate-term Bonds?
Bonds with five to ten year maturity.

What is maturity of a bond?
The date on which a bond's principal is to be repaid.

What is 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.)

What are the par or face value?
the original issue price of a bond.

What is a subordinated debenture?
A debenture whose claim to interest and principal of the corporation comes after those of regular debentures and other debt.

What are tax exempt bonds?
Municipal securities whose interest is free from Federal income tax.

What are treasury bills?
Bonds issued by the U.S. Treasury with maturities of 13, 26 or 52 weeks.

What is a treasury bond?
U.S. bonds with maturities of 10 to 30 years.

What is a treasury note?
U.S. Bonds with 1 to 10 year maturities.

What is bond volatility?
Relative measure of a security's price movement during a specific time.

What is yield?
The rate of return on an investment.

What is a yield curve?
A graph showing the general pattern of yields on bonds or other instrument.

What is a zero coupon rate?
A bond that pays zero interest. Sold at a discount to face value, the investor profits at maturity.