A bond with long-term coupons but a short-term maturity. Super sinkers are usually home-financing bonds that give bondholders their principal back right away if homeowners prepay their mortgages. In other words, mortgage prepayments are used to retire a specified maturity. |||Super sinkers are likely to be paid off in a relatively short time. As a result, holders may receive the higher long-term yield after only a short period.
A swap that is carried out by trading a fixed-income security for a higher yielding bond with similar features. |||The two securities being swapped have similar coupon rates, maturity dates, call features, credit quality, etc. Investors will most often participate in substitution swaps when they believe there is a temporary discrepancy in bond prices due to market disequilibrium.
Short-term debt securities issued in anticipation of future tax collections. |||TANs are generally issued by state and municipal governments to provide immediate funding for a capital expenditure, such as highway construction.
Unique bills sold at a discount and maturing within 23 to 273 days that the United States Treasury Department issues to investors. Since 1975, the Treasury has relied on the sale of cash management bills, rather than TABS, to raise money. |||TABS and, now, cash management bills offer companies and/or investors a great way to set aside - and earn interest on - funds while allowing government proper cash inflow prior to the collection of tax revenues. This can make budgeting easier and allow for even greater financial diversity.
A type of credit derivative that is similar to a planned amortization class (PAC) in that it protects investors from prepayment; however, it is structured differently than a PAC. TACs protect investors from a rise in the prepayment rate or a fall in interest rates. They do not protect from a fall in the prepayment rate like PACs. |||The TAC is essentially a bond under a collateralized mortgage obligation (CMO). Under a TAC, the principal is paid on a predetermined schedule. Any prepayment that occurs is amortized in order to maintain the schedule. TACs are inferior to PACs because they only provide one-sided prepayment protection.
A procedure that allows borrowers to sell bonds or other short-term debt instruments from past issues. The bonds are issued at their original face value, maturity and coupon rate, but sold at the current market price. |||This method of issuing additional debt was adopted by the British and French governments. Tap issues allow an organization to avoid certain transaction or legal costs and expedite fund raising. The issuer bypasses many of the initial formalities surrounding a bond issue, such as the prospectus, and proceeds to auction off the new securities. Issuing on tap is often suited for smaller fund-raising attempts, where the cost of a new issue is too high when compared to the amount borrowed.
A type of financial institution that provides a long-term mortgage on property. This mortgage will replace interim financing, such as a construction loan. Take-out lenders are normally large financial conglomerates, such as insurance or investment companies. |||Take-out lenders replace short-term lenders such as banks or savings and loans. These entities usually view the properties for which they provide mortgages as investments. They expect them to provide capital gains when they are sold, in addition to receiving the mortgage payments.
A letter of credit that has been pre-funded by the bank on the closing date, instead of when the funds are drawn as needed. The funds accessible through a synthetic letter of credit are typically held in a credit-linked deposit account until required. |||Since the funds borrowed through a synthetic letter of credit are given immediately, they are a more liquid source of funds to the borrower than a standard letter of credit. The proceeds are therefore considered more secure, as there is no counterparty risk which could result in the funds becoming unavailable.
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