A noncallable regular coupon paying debt instrument with a single repayment of principal on the maturity date. |||Sometimes referred to as a virgin bond.
A change in the yield curve caused by short-term rates falling faster than long-term rates, resulting in a higher spread between the two rates. |||A steepener differs from a flattener in that a steepener widens the yield curve while a flattener causes long-term and short-term rates to move closer together. When the yield curve is said to be a bull steepener it means that the higher spread is caused by the short-term rates, not long-term rates.
A type of bond that offers investors the option to reinvest coupon payments into additional bonds with the same coupon and maturity. Also known as "multiplier bond" or "guaranteed coupon reinvestment bond." |||Bunny bonds are an effective way to protect against reinvestment risk, which arises from the possibility that interest rates will drop in the future. With a normal bond, investors are exposed to the risk of having to reinvest their coupons at a lower interest rate. If an investor chooses to reinvest all cash coupons back into the bond he is currently holding, it behaves similarly to a zero-coupon bond, as the investor receives no cash flow until maturity.
A savings certificate entitling the bearer to take advantage of rising interest rates with a one time option to "bumping up" the interest rate paid. The bump-up certificate of deposit (bump-up CD) yields a lower rate than that of a similar certificate of deposit (CD) with no bump-up option. |||The purchaser of a bump-up CD is hoping that interest rates will go up. once up, the holder can elect to increase the interest rate to the now higher going rate. If interest rates don't rise, there is the opportunity lost of having to keep the lower interest rate for the term of the CD. When purchasing a bump-up CD, be sure to find out how many times you are allowed to bump-up the interest rate, and whether you have to extend the term of the CD with each bump-up.
1) A one-time lump-sum repayment of an outstanding loan, typically made by the borrower after very little, if any, amortization of the loan. This can also refer to a loan that requires a disproportionately large portion (or even all) of the loan to be repaid at maturity.2) A slang term for a letter of rejection sent to a job applicant, informing the candidate that he or she has not been offered the job, has been denied an interview or some similar form of rejection. |||1) Loans can have provisions built into them upon issuance to allow borrowers to make a one-time lump-sum repayment of the loan at their discretion. This option can prove useful for borrowers, particularly if their financial situation significantly changes for the better shortly after the loan is issued. For example, an early lump-sum repayment can considerably lower the interest expense accrued over the course of the loan.2) Companies typically send out bullet letters once they have filled the position they had available, or (if the bullet letter denies an interview) once the company has selected its entire interview pool. In other cases, a company may simply state in the job advertisement that it will only contact applicants who are selected for an interview.
A single payment for an entire loan amount that is paid at maturity. |||For large loan amounts, such as mortgage loans, refinancing is usually required in order to pay the entire bullet repayment amount.
Bonds issued by an issuer who failed to pay the required interest payments or principal amount to the debt holder (or both). The issuer of a busted bond would be considered bankrupt and would have to liquidate his or her assets to repay the bond holders. The terms “busted bond” can also refer to convertible debt securities that have an insignificant conversion value because conversion price is much higher than the market value of the underlying securities. |||In the event that a bond becomes busted, the issuing firm would be forced to file for bankruptcy, as the terms of their debt had been violated. Busted bonds in default are worth much less than the discounted value of their cash flows. Busted bonds that arise from a decline in the price of the underlying asset, such as convertible bonds, are not in violation of their covenants - they are simply worth less than equivalent securities with embedded options and are closer to being in the money.
A period of slowing mortgage prepayment within a mortgage backed security (MBS). This usually occurs after the mortgages start to mature. When some percentage of the underlying loans fail to prepay after an interest rate cycle, this is known as burnout. Those borrowers who did not refinance during the first interest rate cycle are less like to do so if interest rates drop again. |||The rate at which the underlying loans of an MBS prepay is largely a function of current interest rates relative to the interest rates on the underlying loans. If current interest rates fall to a certain point below the interest rate on an existing mortgage, borrowers have an incentive to refinance. An MBS can go through several cycles of interest rates over its term. Prepayment risk is a substantial risk for investors in MBSs and investors look for MBSs with burnout because burnout lessens the prepayment risks.
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