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Any bond that has been rated as such by a rating agency. In the case of Moody’s, Standard & Poor’s and Fitchratings, these would be ratings of Baa or better and BBB or better, respectively.

Bonds whose coupon rates increase as rates decline and decrease as rates rise. The coupon rate is based on a formula using an index and moves in the opposite direction of changes in that index. Some inverse floaters may be a type of structured note. Other inverse floaters, such as…

A major component of an option’s value. It is the greater of the amount by which an option is in-the-money or zero.

A New York-based trade association that deals with matters of common interest to member swap dealers.

The discount rate that equates the sum of the present values of the cash flows associated with an investment with the initial cost of the investment.

An agreement between two parties to engage in a series of exchange of interest payments on the same notional principal denominated in the same currency.

1) The risk that on closing a position, the current interest rate will be different then the original contract rate. 2) The price risk associated with holding a fixed-rate debt/derivative instrument as a result of fluctuations in the instrument’s yield.

Generic term used to imply inters rate caps, inters rate floors or inter rate collars. See caps, floors and collars.

Futures on debt instruments or debt indexes. Known as bond futures or short term interest rate futures (STIRs) depending on the underlying asset.

The rate differential between instruments of the same maturity but denominated in different currencies.

A combination of an interest-rate cap and an interest-rate floor such that a cap is purchased and a floor is sold. The effect is to place upper and lower bounds on the cost of funds.

A portfolio immunization strategy where bonds in a portfolio are exchanged for new bonds in order to achieve the target portfolio duration, given the investor’s expectations about changes in interest rates.