A bond or other type of debt whose coupon rate has an inverse relationship to a benchmark rate. An inverse floater adjusts its coupon payment as the interest rate changes. When the interest rate goes up the coupon payment rate will go down because the interest rate is deducted from the coupon payment. A higher interest rate means more is deducted, thus less is paid to the holder. A ratio of the interest rate can also be used instead of one to one relationship. Also known as an inverse floating rate note. |||You would want to invest in an inverse floater if the benchmark rate is high and you think the rate will decrease in the future at a faster rate than the forwards show. With an inverse floater, as interest rates fall, the coupon rate rises because less is taken off. One more strategy is to buy an interest rate floater if the rates are low now and you expect them to stay low, BUT the forwards are implying an increase. If you were correct and the rates do not change, you will outperform the floating rate note by purchasing the inverse floating rate note.
A pass-through Ginnie Mae II mortgage-backed security that is collateralized by multiple-issuer pools. These pools combine loans with similar characteristics and are generally larger than single-issuer pools. The mortgages contained in jumbo pools are more diverse on a geographical basis than single-issuer pools. |||Registered holders of Ginnie Mae II securities receive aggregate principal and interest payments from a central paying agent. Interest rates on mortgage loans contained within jumbo pools may vary within one percentage point. Because these pools are backed by multiple issuers, they are typically considered a safer form of mortgage-backed security investment.
A certificate of deposit (CD) with a minimum denomination of $100,000. |||Jumbo CDs are typically bought and sold by large institutional investors, such as banks and pension funds, because of the high minimum denomination.
A bond that is guaranteed by a party other than the issuer. Also called a "joint-and-several bond." |||These are commonly used when a parent company is required to guarantee the bonds of a subsidiary.
Holding all other maturities constant, this measures the sensitivity of a security or the value of a portfolio to a 1% change in yield for a given maturity.The calculation is as follows:Where:P- = Security's price after a 1% decrease in yield P+ = Security's price after a 1% increase in yield P0 = Security's original price |||There are 11 maturities along the Treasury spot rate curve, and a key rate duration is calculated for each. The sum of the key rate durations along a portfolio yield curve is equal to the effective duration of the portfolio.
A contract between a parent company and its subsidiary to maintain solvency and financial backing throughout the term set in the agreement. |||This is a method by which subsidiary companies may increase the creditworthiness of debt instruments and corporate borrowing.
A type of foreign bond that is issued in the Australian market by non-Australian firms and is denominated in Australian currency. The bond is subject to Australian laws and regulations.Also known as a "matilda bond." |||Foreign bonds, such as kangaroo bonds, are mainly used to provide issuers with access to another capital market outside of their own to raise capital. Also, major corporations and/or investment firms looking to diversify their holdings and improve their overall currency exposures can use kangaroo bonds to raise funds in Australian dollars. Major issuers of kangaroo bonds have typically been from the United States Germany. Other foreign bonds include samurai bonds and bulldog bonds.
A bond rated 'BB' or lower because of its high default risk. Also known as a "high-yield bond" or "speculative bond". |||These are usually purchased for speculative purposes. Junk bonds typically offer interest rates three to four percentage points higher than safer government issues.
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