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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.

The spread, in basis points, that a security is trading over the appropriate maturity Treasury security.

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

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. This includes other…

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…

Assets will move in the opposite direction. Benefits of diversification are greater when assets are negatively correlated.

Moody’s, Standard and Poor’s, FitchRatings and Egan-Jones are the most well-known of the 10 NRSRO’s.

A type of investment fund which pools investors’ monies together, targeting a specific market and/or sector, which is managed by professional asset managers. Mutual funds offer the individual investor diversification that they generally cannot get on their own. The investor buys shares in the fund and participates in the fund’s…

Bonds issued by state and local governments, often known as general obligation bonds. The credit worthiness is based on the credit of the municipality. Special Revenue bonds are issued by agencies or authorities of state and local governments for specific public work projects, the cash flows of these projects secure…

Known by the acronym MBS. Securities backed by whole mortgages or by mortgage pass-through certificates. Mortgage pass-through certificates are themselves mortgage-backed securities.

A simulation that attempts to simulate the future using an uncertain variable. For example, to simulate the future stock price, a simulation may use an algorithm using the current price, mean/average of the stock and volatility/standard deviation. The simulation will randomly generate a term that will change the volatility resulting…

Also known as money market basis. A method of calculating the yield on certain money market instruments. The method assumes the payment frequency is annual and uses an actual over 360 day count convention in the yield calculation. Some countries use a 365-day basis for their money market calculations. U.S.…