Nationally Recognized Statistically Rating Organization (NRSRO)

Moody’s, Standard and Poor’s, Fitch Ratings and Egan-Jones are the most well-known of the ten NRSRO’s. 

Negative convexity

Convexity is defined as the property of a financial instrument that dictates the amount by which its value changes with changes in market rates.  For example, a MBS is said to have negative convexity if its price rises by an amount p1 when yields fall, and its price falls by an amount p2 when yields rise, and if p1

Netting

(1) The standard practice in swap documentation requiring that only the interest differential on interest-rate swaps be exchanged with the higher paying party making payment of this difference to the lower paying party.  (2) The reduction of risk exposures by netting payments under a master swap agreement.

Nominal Spread

The spread, in basis points, that a security is trading over the appropriate maturity on-the-run Government security.  The spread may also be over an interpolated maturity or another benchmark such as the swap curve.

Nominal yield

The rate of return over a given time period, e.g., quarterly or semi-annually, without taking compounding into account. 

Non-amortizing debt

A debt obligation in which the full principal is repaid in a single transaction upon maturity of the debt with no repayments of principal prior to maturity.  See also bullet transaction.

Nonparallel shift

A shift in the yield curve where the short end of the curve doesn’t move by the same number of basis points as the long end of the curve.  Can result in a widening, flattening or inversion of the yield curve.

Notional principal

The amount of principal on which the interest is calculated on a swap or related instrument including FRAs and interest rate options.  In the case of interest rate swaps, FRAs, and interest-rate options, the principal is purely "notional" in that no exchange of principal ever takes place.