The most recently issued U.S. Treasury bond or note of a particular maturity. These are the opposite of "off-the-run treasuries". |||When quoting the price or yield of a Treasury, all market commentary refers to the on-the-run issue. The on-the-run bond or note is the most frequently traded Treasury security of its maturity. Because on-the-run issues are the most liquid, they typically are a little bit more expensive and, therefore, yield less than their off-the-run counterparts.
Mainly used for fixed-income products, OAS measures the yield spread that is not directly attributable to the security's characteristics. |||This is a measurement tool for evaluating price differences between similar products with different embedded options. A larger OAS implies a greater return for greater risks.
A series of fixed payments made at the end of each period over a fixed amount of time. |||An ordinary annuity is essentially a level stream of cash flows for a fixed period of time. Straight bond coupon payments are normally referred to as ordinary annuities.
The process of posting more collateral than is needed to obtain or secure financing. Overcollateralization is often used as a method of credit enhancement by lowering the creditor's exposure to default risk. |||Overcollateralization is often done in order to get a better debt rating from a credit rating agency. The principal underlying a pool of assets is often greater than the principal amount of the issued security by approximately 10-20%.For example, in the case of a mortgage backed security, the principal amount of an issue may be $100 million while the principal value of the mortgages underlying the issue may be equal to $120 million.
The discount from par value at the time that a bond or other debt instrument is issued. It is the difference between the stated redemption price at maturity and the issue price. |||An original issue discount bond is a bond issued at a price below par. The most extreme example of an OID is a zero-coupon bond. OID is considered to be a form of interest, so tax issues can get a bit complicated.
The par value of a mortgage-backed security at the time it is issued. Unlike most other types of bonds, mortgage-backed securities return both principal and interest to the holder in periodic payments (usually monthly). Over time, the outstanding principal balance of a mortgage-backed security will be reduced. The original face remains an important and distinguishing piece of information associated with a mortgage-backed security. |||By definition, a new issue mortgage-backed security will have a pool factor of 1; in other words, the original face will equal the current face. As the principal is paid down, the current face will be less than the original face. The current face is derived by multiplying the original face by the current pool factor.
The rate on a securitized asset pool - such as a mortgage-backed security (MBS) - that is "passed-through" to investors once management fees and guarantee fees have been paid to the securitizing corporation. The pass-through rate (also known as the coupon rate for the MBS) will be lower than the interest rate on the individual securities within the offering. |||For example, suppose that an agency takes two million dollars' worth of mortgage loans, each of which pays 6% interest, and turns them into a 5.5% mortgage-backed security. The 5.5% reflects the pass-through rate, and the agency takes the remaining 0.5% as a cut of the proceeds.The largest issuers of securitized assets are the Sallie Mae, Fannie Mae and Freddie Mac corporations. While these companies are for-profit business, their guarantees are backed by the U.S. government, giving them high credit ratings.
A type of convertible debenture, part of which will be redeemed by the issuing company after a specified period of time and part of which is convertible into equity or preference shares at the end of the specified period. The ratio of conversion for the partially convertible debenture is decided by the issuer when the debenture is issued. |||Any partial conversion will be optional at the hands of the debenture holder. Partially convertible debentures differ from fully convertible debentures, in which all of the instrument must be converted into equity.
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