Unsecured short-term fixed income instrument that is issued either by a corporation, city, state or country, that has a high probability of defaulting on their promissory notes. Since bad paper is not backed by collateral, it is sold at a discount to the equivalent collateral-backed fixed-income securities. However, in contrast to regular commercial paper which typically has a strong rating from a credit agency, bad paper does not possess this quality. |||Bad paper is risky. Not only is it not backed by collateral, it is also issued by an entity that could potentially fail to meets its obligations. Bad-paper investors take on high levels of risk and, as a result, would be offered an attractive interest rate as proper compensation.
A zero-coupon bond issued by certain states to assist families save for college tuition by means of added tax benefits. |||These bonds are typically issued in small denominations and are offered in several maturities, making them more convenient for investing and paying yearly college tuition fees. In some states, additional benefits like tuition discounts may be included.
Bonds rated Ba3/BB- are generally considered speculative in nature and are not considered to be investment-grade bonds suited for people wishing to avoid the risk of losing their principal. These bonds are commonly referred to as junk bonds, though this rating indicates that they are towards the more stable end of the junk-bond rating spectrum. Ba3 is a long-term bond rating provided by the Moody's rating service, while BB- is the parallel rating provided by both the S&P and Fitch rating services. Ba2/BB is the rating that falls directly above Ba3/BB-, while B1/B+ falls directly below. |||Bonds rated Ba3/BB- provide a yield-to-maturity or yield-to-call rate that is well above bonds with higher ratings, especially those issued by the U.S. government, municipalities and the largest global corporations. However, it is important for investors to realize that this higher rate serves as compensation for investing money in a company or government that may not be financially sound and may result in the loss of one's investment.
The interest a person or trader shows in buying or selling a bond. A trader may have specific interest in a certain type of bond based on his or her existing positions. |||In a bond market, trader axes are matched up in order to execute a transaction.
1. A representative measure of a range of prices that is calculated by taking the sum of the values and dividing it by the number of prices being examined. The average price reduces the range into a single value, which can then be compared to any point to determine if the value is higher or lower than what would be expected.2. A bond's average price is calculated by adding its face value to the price paid for it and dividing the sum by two. The average price is sometimes used in determining a bond's yield to maturity where the average price replaces the purchase price in the yield to maturity calculation. |||1. In situations where there is a range of prices it can be useful to calculate the average price to simplify a range of numbers into a single value. For example, if over a four-month period you paid $104, $105, $110, and $115 for your utilities, the average price or cost of your monthly utilities would be $108.50. 2. Although the average price of a bond is not the most accurate method to find its YTM, it does give investors a rough and simple gauge to find out what a bond is worth.
An estimate of the number of terms to maturity, taking the possibility of early payments into account. Average life is calculated using the weighted average time to the receipt of all future cash flows. |||This is often used in sinking funds.
For a single bond, it is a measure of maturity that takes into account the possibility that a bond might be called back to the issuer.For a portfolio of bonds, average effective maturity is the weighted average of the maturities of the underlying bonds. The measure is computed by weighing each bond's maturity by its market value with respect to the portfolio and the likelihood of any of the bonds being called. In a pool of mortgages, this would also account for the likelihood of prepayments on the mortgages. |||This measure is a more accurate way to get a feel for the exposure of a single bond or portfolio. Particularly in the case of a portfolio of bonds or other debt, a simple average could be a very misleading measure. Knowing the average maturity of the portfolio is essential to knowing the interest rate risks faced by that portfolio.
A benchmark interest rate quoted and dispersed by Reuters Information Service. The BBSY is typically used by financial institutions or corporations engaging in interest rate swaps and related transactions. |||A good example of where the bank bill swap bid rate comes into play in an interest rate based transaction is an interest rate cap agreement. In this type of agreement, one party in a swap remits payments to another party if the prevailing interest rate is above or below a certain value. In order to decide what interest rate is used to determine the payment amounts in the agreement, the BBSY is agreed upon at the inception of the agreement as the reference rate.
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