The interest rate that will be paid on a specific security as determined by the Dutch auction process. The auctions take place at periodic intervals, and the interest rate is fixed until the next auction is held. This process is commonly used to determine the interest rate on Treasury bills. |||The auction rate is also used in other debt securities, such as municipal bonds. This is a good way for both the investor and the issuer to forecast their returns and costs, respectively, as the auctions can be held as often as annually or even weekly. The auction process also allows investors to mitigate reinvestment risk because the interest rate fluctuations are generally less volatile.
A debt security that is sold through a dutch auction. The auction rate security (ARS) is sold at an interest rate that will clear the market at the lowest yield possible. This ensures that all bidders on an ARS receive the same yield on the debt issue.The interest rate is reset periodically. |||In essence, an auction rate security is a long-term debt issue, but it acts as if it were a shorter term issue. This is because interest rates are reset approximately every month, depending on whether the issue is tax exempt, and the interest is paid either shortly after the auction yield is settled or every quarter or half year.
A professional association of bond dealers. The members consist of over 350 various financial conglomerates and institutions that actively trade bonds. The association makes recommendations pertaining to bond dealing rules to the regulators of various European countries. |||The Association of International Bond Dealers was formed in Zurich, Switzerland in 1969. The association publishes consolidated bond quotes and yields for the eurobond market. The association was formed in order to promote better trading prices and conditions for the eurobond market.
A transaction used primarily in the mortgage-backed securities (MBS) to be announced (TBA) market, where the obligation to fulfill an existing forward trade is assigned by one of the counterparties to a third party. Assignments of trade are frequently used to avoid having to make delivery of securities into, or receive delivery of securities from, a TBA trade. The process has been formalized by the Securities Industry and Financial Markets Association (SIFMA). |||Mortgage originators use assignments of trade to facilitate the pricing and purchase of whole loans by the third party to which the TBA trade is assigned, with the agreement that the third party will then make delivery of an MBS into the original TBA trade, which was taken out by the mortgage originator as a hedge. In other words, an assignment of trade allows a mortgage originator to unwind its hedge position by assigning it to the third party and simultaneously agreeing to sell an equal amount of loans to that third party. The price at which the whole loans are sold to the third party is established by price of the trade being assigned.
A financial security backed by a loan, lease or receivables against assets other than real estate and mortgage-backed securities. For investors, asset-backed securities are an alternative to investing in corporate debt. |||An ABS is essentially the same thing as a mortgage-backed security, except that the securities backing it are assets such as loans, leases, credit card debt, a company's receivables, royalties and so on, and not mortgage-based securities.
The average yield on an investment or a portfolio that results from adding all interest, dividends or other income generated from the investment, divided by the average of the investments for the year. The average annual yield is a particularly useful tool for floating-rate investments, in which the fund's balance and/or the interest rate change frequently. |||For example, for a savings account that pays a floating rate of interest on balances, the average yield can be calculated by adding all interest payments for the year and dividing that number by the average balance for the year. The average annual yield is a backward-looking measurement and can be very useful in determining the actual performance of a mixture of investments.
The electronic system on the NYSE that records bids and offers for inactively traded bonds until they are canceled or executed. |||Because the bid and ask prices of inactively traded bonds aren't constantly changing due to demand and supply conditions, investors looking for a quote may have difficulties. By having all inactive bonds electronically monitored, the NYSE is able to keep a good inventory of bond prices, just in case an investor is interested in purchasing them.
A debt security issued by an authority, such as a corporate or government agency, for purposes of financing the operations of a revenue-generating public business. Investors in authority bonds have a claim to the business's revenues, which serve as the bond's yield. |||An authority bond is very similar to a municipal bond. Both are issued by an authoritative group, but the projects will typically be of differing natures. Additionally, authority bonds can incorporate margin protections, providing some insurance for the holders.
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