When a person pledges a mortgage as collateral for a loan, it refers to the right that a banker has to liquidate goods if you fail to service a loan. The term also applies to securities in a margin account used as collateral for money loaned from a brokerage. |||You are said to "hypothecate" the mortgage when you pledge it as collateral for a loan.
A security that combines two or more different financial instruments. Hybrid securities generally combine both debt and equity characteristics. The most common example is a convertible bond that has features of an ordinary bond, but is heavily influenced by the price movements of the stock into which it is convertible. Often referred to as "hybrids". |||New types of hybrid securities are being introduced all the time to meet the needs of sophisticated investors. Some of these securities get so complicated that it's tough to define them as either debt or equity.
A relatively rare type of yield curve that results when the interest rates on medium-term fixed income securities are higher than the rates of both long and short-term instruments. Humped yield curves are also known as bell-shaped curves. |||A market with a humped yield curve could see rates of bonds with maturities of one to five years trumping those with maturities of less than one year or more than five years. However, this type of yield curve does not happen very often. Although a humped yield curve is often an indicator of slowing economic growth it should not be confused with an inverted yield curve.
A short-term or long-term bond issued by state or local governments to help finance the construction or rehabilitation of affordable rental housing. Under certain programs, the proceeds from Housing Authority bonds may also be used to help low-income individuals and families purchase a home. The interest received by investors in these bonds is generally exempt from federal, state, and local income taxes. |||Though Housing Authority Bonds have generally been viewed as very safe investments, their status with investors has declined some over the last decade. This change in public opinion has been due to numerous municipal financial crises as well ratings downgrades for many of the private companies that insure these bonds against default. Investors considering Housing Authority Bonds should pay close attention to the ratings of the individual bond issues, the municipality borrowing the money and the private third-party insurers.
A loan given by a bank, mortgage company or other financial institution for the purchase of a primary or investment residence. In a home mortgage, the owner of the property (the borrower) transfers the title to the lender on the condition that the title will be transferred back to the owner once the payment has been made and other terms of the mortgage have been met. A home mortgage will have either a fixed or floating interest rate, which is paid monthly along with a contribution to the principal loan amount. As the homeowner pays down the principal over time, the interest is calculated on a smaller base so that future mortgage payments apply more towards principal reduction as opposed to just paying the interest charges. Watch: Mortgage Basics |||Home mortgages allow a much broader group of citizens the chance to own real estate, as the entire sum of the house doesn’t have to be provided up front. But because the lender actually holds the title for as long as the mortgage is in effect, they have the right to foreclose the home (sell it on the open market) if the borrower can’t make the payments. A home mortgage is one of the most common forms of debt, and it is also one of the most advised. Mortgage loans come with lower interest rates than almost any other kind of debt an individual consumer can find.
A high paying bond with a lower credit rating than investment-grade corporate bonds, Treasury bonds and municipal bonds. Because of the higher risk of default, these bonds pay a higher yield than investment grade bonds.based on the two main credit rating agencies, high-yield bonds carry a rating below 'BBB' or from S&P, and below 'Baa' from Moody's. Bonds with ratings at or above these levels are considered investment grade. Credit ratings can be as low as 'D' (currently in default), and most bonds with 'C' ratings or lower carry a high risk of default; to compensate for this risk, yields will typically be very high. Also known as "junk bonds". Watch: Understanding Bonds |||All "junk" connotations aside, high-yield bonds are widely held by investors worldwide, although most participate through the use of mutual funds or exchange-traded funds. The yield spread between investment grade and high-yield will fluctuate over time, depending on the state of the economy, as well as company and sector-specific events.Generally, investors in high-yield bonds can expect at least 150 to 300 basis points greater yield compared to investment-grade bonds at any given time. Mutual funds provide a good way to gain exposure without the undue risk of investing in just one issuer's junk bonds.
The percentage difference in current yields of various classes of high-yield bonds (often junk bonds) compared against investment-grade corporate bonds, Treasury bonds or another benchmark bond measure. Spreads are often expressed as a difference in percentage points or basis points (which equal one-one hundredth of a percentage point). |||High-yield spreads are used by investors and market analysts to evaluate the overall credit markets. Higher spreads indicate a higher default risk in junk bonds, and can be a reflection of the overall corporate economy (and therefore credit quality) and/or a broader weakening of macroeconomic conditions. The higher current yields of junk bonds reflects their greater risk of default to the investor than investment-grade bonds.
The time lag between when a macroeconomic shock or other adverse condition is recognized by central banks and the government, and when a corrective action is put into place. The response lag may be short or long, depending on whether policy makers have a definite course of action or must deliberate on the right action to take. Also, proper implementation of the corrective action may have to happen incrementally, rather than all at one time. |||The implementation lag follows the recognition lag, which measures how long it takes before the adverse condition is even noticed. Because the broad economy is such a complex set of moving parts, time delays are inevitable when trying to recognize, diagnose and fix macroeconomic shocks.While the Federal Reserve Board has a preset schedule of when to meet to discuss monetary policy changes, they can decide to step in whenever they see fit to change interest rates, buy or sell Treasuries, or otherwise assist the economy.
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