Targeted Amortization Class (TAC)

A tranche in a CMO that is similar to PACs but have a single PSA rate (not a band of PSA rates like the PAC) that protects it from fluctuations in prepayment speeds.  TACs are protected against higher than expected prepayment rates but not against extension risk.  If prepayments are slower than the pricing speed, then TACs have the same prepayment risk as the underlying collateral. 

Tax driven swaps

Asset-based swaps that are used to alter the tax character of a cash flow stream.

TED spread

The difference between the interest rate on Treasury bills and the interest rate on Eurodollar deposits of similar maturities.  The definition applies to both cash instruments and futures contracts.

Tenor

The length of the life (term to maturity) of a multi-period derivative instrument such as a rate cap, a rate floor, or a swap.

Term repo

A repurchase agreement having a maturity of more than one day.

Term structure of interest rates

The relationship between debt instrument maturity and yield to maturity for a given class of instruments when all other yield influencing factors are held constant.

Term structure of interest rates

Shows the relationship between interest rates on bonds of different maturities, usually depicted in the form of a graph called a yield curve.

Term to maturity

Also referred to as term.  The length of time from the present until the maturity of an instrument.

Time Value

In terms of an option contracts value, the price of the option attributable to the time remaining until expiry, volatility and interest rates.  Intrinsic value + time value = premium.  

Total Adjusted Capital

An insurance industry term that in general means the statutory capital and surplus, plus any other adjustments for risk based capital requirements or other adjustments, such as affiliates asset value reserve (AVR).  It forms the numerator in the risk based capital ratio.

Total Return

A tool of performance measurement defined as the change in value of an investment over a given period, taking into consideration reinvestment of dividends, interest received and capital gain distributions, expressed as a percentage of the initial investment.

Total Return Swaps

A financial contract where two parties agree to:
•    Exchange predetermined cash flows over the life of the contract
•    One counterparty agrees to pay on a referenced loan/bond while the other
•    One counterparty agrees to pay on a floating rate, generally LIBOR + spread
There is a final or intermittent settlement, based on cash, or delivery of securities/loans 

Tracking error

Returns are generally measured and benchmarked to a particular index. Tracking error is the difference between the performance of a particular portfolio and the benchmark.

Transaction costs

The costs associated with engaging in a financial transaction.  These include such explicit costs as commissions and front-end fees and indirect costs such as a bid-ask spread.

Treasury bills

Also known as T-bills.  Short-term securities sold at a discount from face value by the United States Treasury as part of its ongoing funding operation.  Offered in maturities of 13 weeks, 26 weeks, and 52 weeks.

Treasury bonds

Also known as T-bonds.  Long-term coupon-bearing securities sold at periodic auctions by the United States Treasury to fund its ongoing operations.  Offered in thirty-year maturities.

Treasury notes

Also known as T-notes.  Intermediate-term coupon-bearing securities sold at periodic auctions by the United States Treasury to fund its ongoing operations.  Offered in two, three, four, five, seven and ten year maturities.