Bank Discount

Also known as discount basis.  A yield measure used to express the yield on certain non-coupon bearing securities, such as T-bills, that always sell at a discount from face value.

Bank Reserve Requirements

The Federal Reserve requires banks to put “in reserve” a certain portion of their deposits

Barbell

A bond portfolio structuring technique where investments are made primarily in securities with only short term and long-term maturities. Such a strategy helps in achieving a targeted average maturity or duration and the price volatility of an intermediate bond. This strategy allows one portion of the portfolio to take advantage of high yields, while the other portion controls risk.  When compared to an intermediate bond a barbell has an advantage of higher convexity.

Barrier Option

The amount of interest earned on a bond since the last coupon payment date.  Accrued interest is added to the market price of the bond and paid by the purchaser of the bond.  At the next coupon payment date, the buyer will receive a full coupon payment from the issuer

Basis point

An interest rate equal to one one-hundredth of 1 percentage point, that is, 0.01 percent.  The term "basis points" is often abbreviated as "bps."

Basis risk

(1) The degree to which the difference between two prices fluctuates.  (2) The residual risk that remains after a hedge has been placed.

Basis swap

A swap in which both counter-parties pay a floating rate of interest but these are tied to different reference rates. Also called floating-for-floating interest rate swaps.

Bearer securities

Securities, which are physically held by investors.  To receive interest payments, the holder actually clips the coupon and sends it to the obligor.

Benchmark

A standard that works as a reference point for performance measurement. A benchmark is usually an index comprised of securities from various asset classes such as stocks, bonds etc. The benchmark selected has characteristics similar to that of the investment strategy for which the benchmark is applied.

Benchmark Error

Arises from using an incorrect or inappropriate benchmark to compare and assess portfolio returns and management.

Bermudan Option

An option which can be exercised only on certain discreet dates after the premium is paid and up to expiration.

Beta

 Measures the price/yield sensitivity of a security versus the market as a whole.   A beta of 1, means the security has the same degree of price sensitivity or price risk as
the general market.  A beta < 1 means the security is less sensitive and a beta > 1 means the security is more sensitive.

Bid

 The price that a buyer is willing to pay for a security.  In regard to the bid-ask spread, it is the left side of the quote and is the price at which the buyer of the security is offering to buy.

Bid-ask spread

Also called bid-offer spread.  The difference between the bid price and the asked price for any marketed instrument.  In dealer markets, the bid-ask spread is one source of the dealer's income.

Bills

Treasury bills or T-bills as they are known in the market, are short-term, discounted government securities issued for one year or less. T-bills are extremely liquid.

Binary Options

Also known as all-or-nothing options, digital options and Bet options.  Options that pay a fixed amount of cash if they expire in the money, no matter how deeply, otherwise nothing.

Board of Governors of the Federal Reserve

The Federal Reserves governing body

Bond

A marketable debt obligation of an issuer.  Issuers are governments, agencies, municipalities and corporations. Bonds have maturities greater than ten years whereas notes range from two to ten years. However the term bond is often used for notes.

Bond Anticipation Notes

When a municipality or local government requires short term funding in anticipation of issuing longer dated notes/bonds

Bond equivalent yield (BEY)

Also known as the coupon equivalent yield.  A method of calculating and stating the yield on a coupon-bearing instrument.  Most often assumes semiannual compounding.

Book

(1) Market slang that means that a transaction giving rise to a position is recorded among the institution's assets and/or liabilities.  (2) Market slang that refers to an institution's portfolio of some specific asset type such as a "swap book," a "foreign exchange book," and an "options book."

Bootstrapping

As the term is used in swap finance, an iterative
numerical procedure to determine the implied spot yield curve from the conventional yield curve. 
 

British Bankers' Association (BBA)

A London-based trade association that deals with matters of common interest to member banks.  The BBA documentation can be used for swaps and forward rate agreements.

Bullet transaction

A banking term that describes a loan in which the principal is repaid in a single transaction upon maturity of the instrument.  See also non-amortizing debt.

Buy and hold strategy

A passive portfolio management strategy in which stocks or bonds are purchased and held for several years or up to maturity regardless of the market's fluctuations. Such a strategy enables investors to minimize the cost of transactions and tax obligations from capital gains.