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.
A term structure theory suggesting that different bond investors prefer one maturity length over another and are only willing to buy bonds outside of their maturity preference if a risk premium for the maturity range is available. The theory also suggests that when all else is equal investors prefer to hold short-term bonds in place of long-term bonds and that the yields on longer term bonds should be higher than shorter term bonds. |||The preferred habitat theory is an expansion on the expectations theory which suggests that long-term yields are an estimate of the future expected short-term yields. The reasoning behind the expectations theory is that bond investors only care about yield and are willing to buy bonds of any maturity, which in theory would mean a flat term structure unless expectations are for rising rates. The preferred habitat theory expands on the expectation theory by saying that bond investor’s care about both maturity and return. It suggests that short-term yields will almost always be lower than long-term yields due to an added premium needed to entice bond investors to purchase not only longer term bonds, but bonds outside of their maturity preference.
A type of bond issued to fund another callable bond, where the issuer actually decides to exercise its right to buy its bonds back before the scheduled maturity date. The proceeds from the issue of the lower yield and/or longer maturing pre-refunding bond will usually be invested in Treasury bills (T-bills) until the scheduled call date of the original bond issue occurs. |||For example, suppose that in June 2006, XYZ Corp decided to call its 9% callable bond (that is originally set to mature in 2009) for $1,100 on its first call date of January 2007. In July, XYZ Corp would have issued a new bond yielding 7% and took all the proceeds from that bond and invested them into T-bills - ensuring that enough money would be availiable to retire the issue come January.Using pre-refunding bonds can be a good method for companies to refinance their older issue bonds when interest rates drop.
Bonds issued by a government agency that purchases U.S. government securities to pledge as collateral for the bond issue. Pre-funded bonds are issued by municipalities that wish to attain a higher credit rating for their debt. Since state-issued bonds are not pledged by the full faith of the U.S government, the underlying collateral minimizes the risk of default. The pre-funded bond and the U.S. securities tend to have the same maturity. |||Pre-funded bonds provide the tax advantages present in regular municipal bonds, but are exposed to less risks. The federal government-based collateral reduces the potential for the issuer's credit to deteriorate.
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