A form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day. For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction, (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement. |||Repos are classified as a money-market instrument. They are usually used to raise short-term capital.
A bond that features an option for the holder to force the issuer to redeem the bond before maturity at par value. An investor may choose to shorten the maturity on a bond because of market conditions or if he or she requires the principal sooner than expected. |||For example, a company might issue 20-year retractable bonds to the market. This means the investor who buys the bond from the issuer has the right to receive the par value or face value of the bond at any time before maturity. If the investor exercises the right to retract, then he or she will forgo the rest of the coupon payments on the bond. An investor might exercise this option due to unfavorable market conditions such as a rise in interest rates. An increase in interest rates would translate into lower bond prices. As a result, investors may want to switch to higher-yielding bonds.
A bond issued to one party of a contract as a guarantee against the failure of the other party to meet obligations specified in the contract. |||For example, a contractor may issue a bond to a client for whom a building is being constructed. If the contractor fails to construct the building according to the specifications laid out by the contract, the client is guaranteed compensation for any monetary loss.
A type of bond that pays interest in additional bonds, as opposed to cash payouts. |||This type of bond is rare.
A pool of fixed-income securities backed by a package of assets. A servicing intermediary collects the monthly payments from issuers, and, after deducting a fee, remits or passes them through to the holders of the pass-through security. Also known as a "pass-through certificate" or "pay-through security." |||The most common type of pass-through is a mortgage-backed certificate, where homeowners' payments pass from the original bank through a government agency or investment bank to investors.
A gain in yield made by selling one bond and buying another. Also referred to as "yield pickup." |||When the present yield is relatively low compared to the longer-term yields, pickups will be done by investors trying to increase the yield and duration of their fixed income holdings. It is an important strategy for investors seeking a steady flow of income.
A ratio that calculates the amount of bonds sold during the week as a percentage of the amount of municipal bonds that are issued during the corresponding week. only issues of $1,000,000 par value or more are used in the calculation.Also known as the "acceptance ratio". |||The placement ratio is used by investors as an indicator of the overall situation of the municipal bond market. The higher the placement ratio, the better off the municipal bond market is. The data for bonds sold and issued during the week is compiled and published weekly by the market newspaper, "The Bond Buyer".
1. A 1% change in the face value of a bond or a debenture.2. In futures contracts, a price change of one one-hundredth, or 1% of one cent.3. A $1 price change in the value of common stock.4. In real estate mortgages, the initial fee charged by the lender, with each point being equal to 1% of the amount of the loan. It can also refer to each percentage difference between a mortgage's interest rate and the prime interest rate. |||1. It is common to hear changes in bond prices stated in points. For example, if a bond with a face value of $1,000 increases in price by $20, it is said to have risen two points (2%).2. For futures traded in decimal form, the price of a contract can change in increments of one point. This means that if a futures contract decreased in price by 50 points, it would have dropped $0.50.3. If a stock is up two points, then it really means that the stock is up $2. Don't confuse points with percentages when talking about stocks. If a $5 stock rises by $2, it has risen two points. Similarly, if a $50 stock rises by $2, it has also risen two points, although the two-point increase is a much greater percentage change for the $5 stock than for the $50 stock.4. A loan may be quoted as prime plus two points. This means that your loan interest rate is 2% higher than the prime rate of lending. If the prime rate was 5%, your mortgage rate would be 7%. If your bank also charged an up-front fee for the loan, it could express that fee in points. If your loan was $100,000 and your bank charged a $3,000 fee, the fee could be stated as three points.
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