A fixed-income trading strategy that looks for discrepancies in the yield curve, which an investor can capitalize upon by instituting a bond swap. Discrepancies come about when current yields on a particular class of bond (corporate, municipal, etc.) don't match up with the rest of the yield curve or its historical norms. |||An investor performing a matrix trade could be looking to profit purely as an arbitrageur - by waiting for the market to "correct" a yield spread discrepancy - or by trading up for free yield, for example, by swapping debt with similar risks but different risk premiums. Yield curves can be thrown off historical patterns for any number of reasons, but most of those reasons will have a common source: uncertainty about the future of financial markets. Individual classes of bonds may also be inefficiently priced for a period of time, such as a high-profile corporate default that sends shock waves through corporate debt with similar ratings.
A clearing organization that acts as both the issuer and guarantor for option and futures contracts. The Options Clearing Corporation is regulated by both the SEC and the CFTC. The OCC is the largest clearing organization in the world and is owned equally by the American Stock Exchange (AMEX), Chicago Board Options Exchange (CBOE), International Securities Exchange (ISE), Pacific Exchange, and the Philadelphia Stock Exchange (PHLX).
An bond denominated in the Australian dollar and issued on the Australian market by a foreign entity. Also known as a "kangaroo bond." |||Created in 1994, the market for matilda bonds is relatively small.
A strategy of creating investment portfolios that meet the individual needs of investors through tiered investment durations. |||Matching strategies are mainly implemented with fixed-income products. Advisors will identify the needs of investors and structure their portfolios accordingly. For example, retirees living off the income from their portfolios may require stable and continuous payments. A matching strategy would involve the strategic purchase of the securities to pay out dividends or interest at regular intervals.
The tendency of a stock's price to close near the strike price of heavily traded options (in the same stock) as the expiration date nears. This doesn't always happen, but it often does when there is significant open interest. For example, if a stock is trading near $50 and there is heavy trading in both puts and calls at this strike price, there is a tendency for the stock price to be "pinned" at $50 as traders unwind their positions at expiration.
When the interest rate on a loan matches (or is extremely close to) the interest rate on the source of the funds loaned out. An example of this would be if a bank accepted a $100,000 deposit and agreed to pay 5% interest on it for five years, then loaned the $100,000 out at 5.25%. A securitization lender would be a typical user of match-rate funds. |||Match-rate funds typically come with very high penalty fees for early prepayment because the intermediary has agreed to pay a specific interest rate to the depositor. If prepayment was not discouraged, the intermediary could end up paying interest after it had stopped receiving interest payments.
A risk that the writer of an options or futures contract faces when the price of the underlying asset closes at or very near the exercise price of the contract upon expiration. This is a very serious risk because if the asset closes at or very near the strike price upon expiration, the options holder could decide to exercise his or her option and the writer could be assigned to the position. For example, say the purchaser of a $30 call wishes to exercise the option to buy the stock if it closes at this price at expiration. If the position is not covered by the writer, he or she will end up with a short position in the stock and all the risks associated with this position. The reverse is true for a put, leaving the options writer in a long position that is potentially going to lose money.
A term used to identify a foreign bond issued in Spain by a company that is not domiciled in Spain. Matador bonds were bonds denominated in pesetas, and were usually corporate bonds. The market for matador bonds grew rapidly between 1987 and 1999, and attracted many large local and foreign investors. The name matador originated from the bullfighters in Spain. |||Spain followed a systematic approach when accepting new foreign issuers. Spain initially only allowed AAA-rated supranationals to issue matador bonds, then a few years later allowed other sub-AAA multinationals access to Spain's debt markets, and eventually it allowed non-investment grade sovereigns to issue bonds.
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