A fixed-income instrument that is owned by whoever is holding it, rather than having a registered owner. Coupons representing interest payments are likely to be physically attached to the security and it is the bondholder's responsibility to submit the coupons for payment. As with registered bonds, bearer bonds are negotiable instruments with a stated maturity date and coupon interest rate. |||Bearer bonds are getting harder and harder to find these days, especially within developed economies. While they are fairly common in many parts of the world (mainly places where anonymity is an issue), the fact that little protection or recourse exists for holders against issues such as theft has taken away their applicability in recent decades. Furthermore, most bond instruments aren't even physically issued anymore, but exist only in the computerized records of brokers and custodians.
A widening of the yield curve caused by long-term rates increasing at a faster rate then short-term rates. This causes a larger spread between the two rates as the long-term rate moves further away from the short-term rate. |||This widening yield curve is similar to a bull steepener except with a bear steepener this is driven by the changes in long-term rates, compared to a bull steepener where short-term rates have a greater effect on the yield curve.
A yield-rate environment in which short-term interest rates are increasing at a faster rate than long-term interest rates. This causes the yield curve to flatten as short-term and long-term rates start to converge. |||At any time, the yield curve is either in a state of steepening or flattening. These fluctuations occur due to investor demand, change in interest rates, and institutional investors trading large blocks of fixed-income securities. If the curve is flattening, the spread between long-term rates and short-term rates is narrowing. A bear flattener often occurs when the government raises interest rates in the short term. Increasing interest rates drives short-term bond prices down, increasing their yields rapidly in the short term, relative to long-term securities.
Price quotation for a security expressed in terms of yield to maturity. This will usually only be quoted on fixed-income securities such as bonds. |||For example, if a bond price was quoted as 10% and this was also the yield to maturity, then the 10% would be the basis price.
A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security. |||The relationship between percentage changes and basis points can be summarized as follows: 1% change = 100 basis points, and 0.01% = 1 basis point. So, a bond whose yield increases from 5% to 5.5% is said to increase by 50 basis points; or interest rates that have risen 1% are said to have increased by 100 basis points.
When the sale of a mortgage in the secondary mortgage market requires that the seller, usually a mortgage originator, make a "best efforts" attempt to deliver the mortgage to the buyer. This type of trade exists to transfer the risk that a loan will not close from the originator to the secondary market. |||Mortgage originators who hedge their own mortgage pipelines and assume fallout risk usually sell their mortgages into the secondary mortgage market through mandatory or assignment of trade transactions, both of which generally command better pricing than best efforts locks or trades because hedge risks are not transferred to the buyer.
A bond that provides a standard against which the performance of other bonds can be measured. Government bonds are almost always used as benchmark bonds. Also referred to as "benchmark issue" or "bellwether issue". |||More specifically, the benchmark is the latest issue within a given maturity. For a comparison to be appropriate and useful, the benchmark and the bond being measured against it should have a comparable liquidity, issue size and coupon.
A term describing a bond whose price is below the face value or principal value, usually $1,000. As bond prices are quoted as a percentage of face value, a price below par would typically be anything less than 100. |||A bond trading below par is the same as a bond trading at a discount. When a bond trades below par, its current yield is higher than its fixed coupon rate. Bonds may trade below par when interest rates have risen since it was issued, its credit rating has declined, there are concerns about a default, or there is an excess supply. A bond's discount may narrow as it approaches maturity or its first call date, when investors will receive par value.
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