Y – Investment Vocabulary

Yield: The annual rate of return on an investment, expressed as a percentage of the investment. Income yield is obtained by dividing the current dollar income by the current market price for the security. Net yield, or yield to maturity, is the current income yield minus any premium above par or plus any discount from par in the purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond.
Yield to Maturity: The average annual yield on a security, assuming it is held to maturity; equal to the rate at which all principal and interest payments would be discounted to produce a present value equal to the purchase price of the bond. Also called net yield.

W – Investment Vocabulary

When-Issued Basis (WIB): Describes securities that are traded before they are actually issued, with the stipulation that the transactions are null and void if the securities are not issued. Usually abbreviated to “w.i.” following a market quotation for such securities.
Winning Bid: The successful bid for a particular issue. Generally, it produces the lowest net interest cost (NIC) to a municipal borrower or offers the highest premium in a single coupon bid.

U – Investment Vocabulary

Underwriter: A bank or other financial institution that arranges for the sale and distribution of securities and assumes the responsibility for paying the net purchase price. In most instances, the underwriter deals in new issues and with the issuing entity. An investment underwriter guarantees the sale of a securities issue by purchasing the entire issue from the company and then selling it to the public. Underwriting is one function of an investment banker. See also Syndicate.
Unlimited Tax Bond: A municipal bond secured by the pledge of taxes that are not limited by rate or amount.
Unlisted Securities: Securities that are traded in the over-the-counter markets rather than through a recognized exchange.
Validation Proceedings: The legal proceedings required in some states whereby the courts decide the validity of proposed bond issues.
Visible Supply: The total dollar volume of new municipal bond issues coming up for sale within the next 30 days.

T – Investment Vocabulary


Taking a Position: The activities of a dealer who purchases a block of a certain security as inventory for the purpose of resale at a profit.
Tax and Revenue Anticipation Notes (TRANs): Short-term notes issued by states or municipalities to finance current operations in anticipation of future tax receipts and revenue that will be used to repay the debt.
Tax Anticipation Notes (TANS): Short-term notes issued by states or municipalities to finance current operations in anticipation of future tax collections that will be used to repay the debt.
Tax-Exempt Bonds: Bonds for which the interest paid is usually exempt from federal taxes and, in some cases, from state and local taxes in state of issuance. The interest rate paid on these bonds is generally lower than rates on securities that are not tax-exempt.
Term Issue: A bond issue that matures all at once on a specific date.
Terms: The conditions of the sale or purchase of a security.
Thin Market: A market in which trading volume is low, with very few bids to buy or offers to sell.
Trade Date: The date when a security transaction is executed.
Trader: Someone who buys and sells securities for a personal account or a firm’s account for the purpose of short-term profit.
Trading Market: The secondary market for bonds that have already been issued. See Secondary Market.
Tranche: See CMO Class.
Treasury Bill (T Bill): An obligation of the U.S. government with a maturity of one year or less. T -bills bear no interest but are sold at a discount.
Treasury Bonds and Notes: Obligations of the U.S. government that bear interest. Notes have maturities of one to ten years; bonds have longer maturities.
Trustee: A bank designated as the custodian of funds and the official representative of bondholders. In this capacity, the trustee is responsible for enforcing the bondholders’ contract with the issuer.

S – Investment Vocabulary

Safekeeping: Holding securities in a bank’s vaults for protection. This is a service banks offer to customers for a fee.
Sallie Mae: Trade name for the Student Loan Marketing Association (SLMA).
Scale: The terms on a serial bond issue that is reoffered to the public; the scale shows the prices or yields offered for each maturity in the issue.
Seasoned Securities: Recognized securities that are generally accepted by the investing public.
Secondary Distribution, or Offering: The redistribution of a large block of securities previously sold by the issuer or underwriting group in an initial or primary offering. See Primary Distribution.
Secondary Market: The market in which previously issued securities are traded, as compared to the new issue market. Also, the purchase or sale of securities in a special offering or through a means other than the regular channel of trading.
Secured Deposit: Bank deposits of state or local government funds that, under the laws of certain jurisdictions, must be secured by the pledge of acceptable securities.
Secured Loan: A loan that is secured by marketable securities or other marketable valuables. Secured loans may be either time or demand loans.
Securities: Investment instruments such as stocks and bonds.
Securities and Exchange Commission (SEC): An agency created by Congress to regulate securities issuance and trading. The SEC enforces various securities acts that are intended to protect investors.
Security Dealer: An individual or firm who buys and sells securities for his or her own account, acting as principal and taking title of the securities until they are sold to someone else. See Dealer.
Self-Liquidating Bonds: Bonds that are paid for from the earnings of a municipally owned enterprise, usually a utility. The earnings of the enterprise must be sufficient to cover the debt with a reasonable margin of protection in order for the bonds to be regarded as entirely self-liquidating.
Self-Supporting Debt: Debt that requires only the support of taxes that have been designated specifically for its repayment and for no other purpose.
Selling below the Market: A security that is currently quoted at a price less than that quoted for similar securities.
Senior Securities: Securities that have priority over other obligations for claims on the issuer’s assets and earnings.
Serial Bonds: Bonds of the same issue that have different maturities over a number of years. This allows the issuer to retire the issue in small amounts over a long period of time.
Short Covering: Buying back securities that were previously sold, to make delivery on a short sale.
Short Sale: The sale of a security that is not owned by the seller on the expectation that the security can be bought or borrowed from a broker in time to be delivered to the buyer. The short seller’s intent is to profit by buying the security at a lower price than it sold for.
Sinking Fund: A reserve fund set aside over a period of time for the purpose of liquidating or retiring an obligation, such as a bond issue, at maturity. Special Assessment Bonds: Bonds that are paid back from taxes on a property that is being improved with funds financed by the bonds. The issuing governmental entity agrees to make the assessments and to earmark the tax proceeds to repay the debt on these bonds.
Special Tax Bond: A bond secured by a special tax, such as a gasoline tax. Spread: The difference between two figures or percentages. For example, the difference between the bid and asked prices of a quote or between the amount paid when a security is bought and the amount received when it is sold.
Stop Out: The lowest price that the US. Treasury will accept for a new issue of bills, notes, or bonds in a particular auction. Subscription: An agreement to purchase a certain offering for a specific price. The offer is not binding unless it is accepted by the properly authorized representatives of the issuer. Also refers to the order made for the purchase of new securities.
Swap: The sale of a block of securities and the purchase of another block with similar market value. May be made to achieve many goals, including establishing a tax loss, upgrading credit quality, or extending or shortening maturity.
Syndicate: A partnership of banks or brokers that join together in enterprises that are too large for any member to handle individually. An investment banking syndicate is headed by a manager who has made a successful bid for the wholesale purchase of a securities lot. The syndicate members agree to distribute a specified amount of the securities. The manager may allot the securities to them on a pro-rata or other agreed-upon basis. On final distribution of all securities, the syndicate is broken, and the obligation of all members to the terms of the agreement is terminated. See Underwriter.

R – Investment Vocabulary

Rally: A brisk rise in the price of a security or a recovery in the market.
Rate of Return: The yield that can be attained on a security, based on its purchase price or its current market price. On a bond, the rate of return may be the amortized yield to maturity or the current income return. Also refers to income earned on an investment, expressed as a percentage of the cost of the investment.
Rating: The designation used by investors’ services to rate a security. Moody’s ratings range from Aaa (the highest) through Aa, A, Baa, Ba, B, and so on. Standard and Poor’s ratings range from AAA (the highest) through AA, A, BBB, BB, B, and so on.
Realized Gain/Loss: Actual profit or loss experienced upon the sale of a security. Compare Paper Gain/Loss.
Redemption: Liquidating debt by retiring an outstanding obligation. This may occur at maturity but usually occurs at the issuer’s option, such as when a bond issue is retired before its maturity date.
Redemption Fund: A fund created for the purpose of retiring a callable obligation that matures in stages or for purchasing such an obligation as funds become available.
Redemption Price: The price at which a bond may be redeemed, at the issuer’s option, before maturity.
Refinancing: Rolling over the principal on securities that have reached maturity or replacing them with the sale of new issues. The object may be to save interest costs or to extend the maturity of the loan. See Refunding.
Refunding: Replacing an outstanding obligation on or before its maturity with a new issue in order to extend the length of the borrowing, change the interest rate, consolidate issues, or postpone payment until a more opportune time.
Registered Bond: A bond whose principal and/or interest is payable only to the person or organization registered with the issuer. This bond can be transferred only when endorsed by the registered owner.
Regular-Way Delivery: Unless otherwise specified, most government securities sold are to be delivered and paid for on the business day following the transaction. Regular delivery for municipal and corporate securities, however, is three business days. Retire: To withdraw a security from circulation, usually by redeeming it.
Revenue Anticipation Notes (RANs): Short-term notes sold in anticipation of receiving future revenues. The notes are to be paid from the proceeds of those revenues.
Revenue Bond: A state or local bond secured by revenues derived from the operations of specific public enterprises, such as bridges, toll roads, or utilities. Such bonds are not generally backed by the taxation power of the issuer unless otherwise specified in the bond indenture.
Rich: Description of the price of a security when the current market quotation appears to be high (or the income return low) in comparison with either the past price record of the security or the current prices of comparable securities.
Rights: The privilege extended by an issuer to the holder of a security to subscribe to new or additional securities, sometimes at a price lower than the subscription price. This allows current stockholders the opportunity to avoid diluting their percentage of ownership.
Roll Over: To reinvest in a new issue of the same or a similar security after receiving funds from a matured security.
Round Lot: The normal minimum unit of trading for a particular issue or type of security. Compare Odd Lot.

P – Investment Vocabulary

Paper Gain/Loss: Unrealized capital gain or loss on securities held in portfolio, based on a comparison of current market price and the original cost of the securities. Actual appreciation or depreciation is realized when the security is sold. Compare Realized Gain/Loss.
Par Value: The value of a security expressed as a specific dollar amount marked on the face of the security, or the amount of money due at maturity. Par value should not be confused with market value.
Paydown: The net reduction in debt that occurs when the amount of a new issue is less than the maturing issue.
Paying Agent: Usually a commercial bank that dispenses the principal and interest payable on a maturing issue. Municipal bonds are usually also payable at the office of a public treasurer.
Pledged Assets: Bank-owned securities that are pledged as collateral for funds deposited by the federal government or by a state or municipal government. These pledged assets are generally U.S. government or municipal obligations or other types of obligations as specified by law.
Pool: A collection of mortgages assembled by an originator or master servicer as the basis for a security. Pools are identified by a number.
Portfolio: A collection of securities held by an individual or institution.
Positive Carry: A condition in which the yield on a security is greater than the cost of borrowing funds to hold it. Compare Negative Carry.
Power of Attorney: The legal authorization for one party to sign for and act on behalf of another party.
Premium: The amount by which the price paid for a security exceeds the par value of the security. Also, the amount that must be paid over the par value to call or refund an issue before maturity.
Prepayment: An unscheduled principal payment on a mortgage or mortgage-backed security that forms part of the collateral for a mortgage-backed security. This usually occurs when homeowners sell their homes or otherwise prepay their mortgage loans prior to maturity. Prepayments may significantly affect the weighted average life and yield of mortgage-backed bonds. Prepayment Speed: See Prepayment and PSA Prepayment Model.
Prerefunding: See advance refunding.
Primary Distribution, or Offering: The initial sale and distribution of an issuer’s securities. See Secondary Distribution.
Primary Market: The demand for first issues of securities.
Principal: The face or par value of a security. It does not include accrued interest.
Pro Forma Statement: A financial statement based on assumptions usually made on the basis of past account relationships, how these relationships might change in the future, and likely financial developments. A pro forma would be used, for example, to determine the amount and timing of a company’s future cash requirements.
Prospectus: A document issued by a company prior to the sale of a new issue of securities. The prospectus gives detailed information about the company, the offering, the prospects, and the risks, as required by the Securities and Exchange Commission.
Prudent Man Rule: A long-standing common-law rule that requires a trustee who is investing for another to behave in the same way as a prudent individual of reasonable discretion and intelligence who is seeking a reasonable income and preservation of capital.
PSA Prepayment Model: The Public Securities Association prepayment model is used in the mortgage-backed securities market as a measurement of prepayment speed. The 100% PSA model assumes that a brand-new mortgage will prepay at an annualized rate of 0.2 percentage point in its first month and increase by 0.2 percentage point each month thereafter until the 30th month, at which time it reaches 6%, where it remains for the life of the mortgage. Sometimes referred to as standard prepayment assumption model, or simply PSA.
Public Debt: The total outstanding debt of the federal government. May also refer to the total outstanding debt of the federal government along with that of states, municipalities, and other political subdivision.
Public Offering: The offering of securities for sale to the public.

O – Investment Vocabulary

Obligation: A responsibility for repaying a debt.
Odd Lot: A securities holding that contains less than the normal trading unit. Compare Round Lot.
Odd-Lot Dealer: A broker or dealer who buys or sells securities in quantities smaller than the normal trading unit. Offer: The price at which an owner is willing to sell a security.
Offering: The means by which securities are sold to buyers. Usually states the price and terms.
Offering Price: The price at which members of an underwriting syndicate for a new issue will offer securities to investors.
Official Statement: Document prepared by or for the issuer that gives detailed security and financial information about the issue.
Offset: The buying or selling of a security in an exact amount to counterbalance the sale or purchase of a similar type of security. Upon completion of an offset transaction, the initiator’s position remains unchanged.
Open Order: An order to buy or sell a security at a designated price, usually within a certain time limit. See Good ’till Canceled Order.
Option: The right to trade a security during a certain period of time.
Optional Redemption: A right to retire all or part of an issue prior to the stated maturity during a specified period of years, often at a premium. The right can be exercised at the option of the issuer.
Original Issue Discount: A municipal bond issued at a dollar price less than par that qualifies for special treatment under federal tax law. Under that law, the difference between the issue price and par is treated as tax-exempt income rather than capital gain, if the bonds are held to maturity.
Overbought/Oversold: Describes a security or a market that has undergone a sharp rise or fall due to vigorous buying or selling. Being overbought or oversold indicates that such buying or selling may have left prices temporarily too high or too low. Overlay or Overlevy: An amount included in the general property tax to cover abatements and taxes that will probably not be collected.
Over the Counter: A securities market in which dealers negotiate directly, as opposed to an organized securities exchange auction system. The market for U.S. government and municipal bonds is primarily an over-the-counter market.