The Bond Language


Terminology

Angel Bonds

Bonds which have credit rating of either Baa3 to Aaa (Moodys), BBB- to AAA (S&P) or BBB- to Aaa (Fitch), or known as Investment grade bonds

Ask price

Price which investor acquire the bonds

Ask Yield

Yield that the investor received at the price that they invest in the bonds

Bid Price

Price which client is able to sell the bonds

Call date

Date where the issuer is able to call back the bonds in part or in full

Change of Control

A type of bond covenant which gives the bondholder the right to sell back the bonds to the company at a certain price when there is a change in ownership

Credit Rating

The credit worthiness of corporate bonds, normally done by the credit rating companies

Default

The failure or inability of an issuer to pay coupons and/or bond principal.

Discount

Purchasing the bond at a price less than the face value.

Face Value

The nominal value or the dollar value that the investor received at maturity. However, the nominal value might not be the price the investor has to pay

Investment-Grade

Bonds which have credit rating of either Baa3 to Aaa (Moodys), BBB- to AAA (S&P) or BBB- to Aaa (Fitch)

Junk Bonds

Bonds which have credit rating below Ba1 (Moodys), BB+ (S&P) or BB+ (Fitch)

Premium

Buying a bond at price higher than the face value

Price

The price paid to buy/sell a bond, normally expressed as a percentage to the face value

Principal

The nominal value or the dollar value that the investor received at maturity. However, the nominal value might not be the price the investor pays

Re-Fix coupon rate feature

A special feature of some bonds, which allow their coupon rate to be re-fixed in the future

Yield

The annualised return the investor expects to receive from investing in a bond. A simple formula would be yield = coupon rate/price

Yield to Maturity (YTM)

The annualised return the investor expects to receive from investing in a bond when they hold to maturity

Yield to Next Call (YTNC)

The annualised return the investor expects to receive from investing in a bond when the bond is called back by the issuer