A yield curve in which there is little difference between short-term and long-term rates for bonds of the same credit quality. This type of yield curve is often seen during transitions between normal and inverted curves. |||When short- and long-term bonds are offering equivalent yields, there is usually little benefit in holding the longer-term instruments - that is, the investor does not gain any excess compensation for the risks associated with holding longer-term securities. For example, a flat yield curve on U.S. Treasury would be one in which the yield on a two-year bond is 5% and the yield on a 30-year bond is 5.1%.
A debt instrument that is sold or traded without accrued interest, the fraction of the bond's coupon payment that the holder earns between periods of bond payments. There are three possible reasons that a bond would not have any accrued interest: No interest is presently due on the bond according to the date of sale and terms of the bond's issue. The bond is in default. The bond settles on the same date as the interest is paid and therefore no additional interest has accrued beyond the amount already paid out. |||If a bond price is referred to as "dirty" it means that the interest accrued since the last coupon payment is included in the price of the bond. If it is referred to as "clean," the price does not include any accrued interest.Corporate and municipal bond issuers assume a 30-day month and a 360-day calendar to calculate the accrued interest on a bond. However the accrued interest on government bonds is usually determined on the basis of the actual calendar day from date of issuance (called the actual/actual day count).
A bond that is issued in a domestic market by a foreign entity, in the domestic market's currency. |||Foreign bonds are regulated by the domestic market authorities and are usually given nicknames that refer to the domestic market in which they are being offered. Since investors in foreign bonds are usually the residents of the domestic country, investors find them attractive because they can add foreign content to their portfolios without the added exchange rate exposure. Types of foreign bonds include bulldog bonds, matilda bonds, and samurai bonds.
A type of debt security where the whole value of the debenture is convertible into equity shares at the issuer's notice. The ratio of conversion is decided by the issuer when the debenture is issued. Upon conversion, the investors enjoy the same status as ordinary shareholders of the company. |||The main difference between FCDs and other convertible debentures is that the company can force conversion into equity, whereas in other types of convertible securities, the owner of the debenture may have that option. FCDs also differ from partially convertible debentures (PCDs). In case of PCDs, part of the instrument is redeemed and part of it is converted into equity,
A phrase used to describe the unconditional guarantee or commitment by one entity to back the interest and principal of another entity's debt. This full faith and credit commitment is typically employed by a government to help lower the borrowing costs of a smaller, less stable government or a government-sponsored agency. When this occurs, the smaller government or agency takes on the backer's credit quality. |||The Government National Mortgage Association (Ginnie Mae) is one example of a government agency that is backed by the full faith and credit of the U.S. government. It is generally accepted that the U.S. government will never default on its loan obligations. The full faith and credit of the U.S. government essentially confers risk-free status to securities such as U.S. Treasuries. Similarly, securities backed by Ginnie Mae mortgages have lower yields than other mortgage-backed securities because they are assumed to carry less risk.
The gain or loss on foreign investments due to changes in the relative value of assets denominated in a currency other than the principal currency with which a company normally conducts business. A rising domestic currency means foreign investments will result in lower returns when converted back to the domestic currency. The opposite is true for a declining domestic currency. |||Foreign investments are complicated by currency fluctuation and conversion between countries. A high-quality investment in another country may prove worthless because of a weak domestic currency. Foreign-denominated debt used to purchase domestic assets has led to bankruptcy in several cases due to a fast decline in a domestic currency or a rapid rise in the currency of the foreign-denominated debt.
A type of convertible bond issued in a currency different than the issuer's domestic currency. In other words, the money being raised by the issuing company is in the form of a foreign currency. A convertible bond is a mix between a debt and equity instrument. It acts like a bond by making regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock. |||These types of bonds are attractive to both investors and issuers. The investors receive the safety of guaranteed payments on the bond and are also able to take advantage of any large price appreciation in the company's stock. (Bondholders take advantage of this appreciation by means warrants attached to the bonds, which are activated when the price of the stock reaches a certain point.) Due to the equity side of the bond, which adds value, the coupon payments on the bond are lower for the company, thereby reducing its debt-financing costs.
Goods, securities or instruments that are equivalent and, therefore, interchangeable. In other words, they are goods that consist of many identical parts which can be easily replaced by other, identical goods. If the goods are sold by weight or number, this is a good sign that they are fungible. |||Commodities, common shares, or the same company, and dollar bills are examples of fungibles. Fungibility of listed options makes it possible for buyers and sellers to close out their positions by taking offsetting positions. For example, if you buy a long call option, you can close out the position by selling (writing) a put option with the same underlying, expiration date and strike price.
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