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.