Fixed Income: Markets, Issuance, Trading, and Funding

Question 1

Agency Bonds

Answer 1

A bond issued by an entity that is either owned or sponsored by a national government.

Question 2

Auction

Answer 2

A type of bond issuing mechanism often used for sovereign bonds that involve bidding.

Question 3

Backup lines of credit

Answer 3

A type of credit enhancement provided by a bank to an issuer of commercial paper to ensure that the issuer will have access to sufficient liquidity to repay maturing commercial paper if issuing commercial paper is not a viable option

Question 4

Benchmark issue

Answer 4

The latest sovereign bond issue for a given maturity. It serves as benchmark against which to compare bonds that have the same features but that are issued by another type of issuer.

Question 5

Best effort offering

Answer 5

An offering of a security using an investment bank in which the investment bank, as agent for the issuer, promises to use its best efforts to sell the offering but does not guarantee that a specific amount will be sold.

Question 6

Bid-Ask Spread

Answer 6

The difference between the prices at which dealers will buy from a customer (bid) and sell to a customer (offer or ask). It is often used as an indicator of liquidity.

Question 7

Bid-Offer Spread

Answer 7

The difference between the prices at which dealers will buy from a customer (bid) and sell to a customer (offer or ask). It is often used as an indicator of liquidity

Question 8

Bilateral loan

Answer 8

A loan from a single lender to a single borrower.

Question 9

Bridge financing

Answer 9

Interim financing that provides funds until permanent financing can be arranged.

Question 10

Central bank funds market

Answer 10

The market in which deposit-taking banks that have an excess reserve with their national central bank can loan money to banks that need funds for maturities ranging from overnight to one year. Called the federal or fed funds market in the United States.

Question 11

Central bank funds rates

Answer 11

Interest rates at which central bank funds are bought (borrowed) and sold (lent) for maturities ranging from overnight to one year. Called federal or fed funds rates in the US.

Question 12

Certificate of Deposit

Answer 12

An instrument that represents a specified amount of funds on deposit with a bank for a specified maturity and interest rate. CDs are issued in various denominations and can be negotiable or non-negotiable.

Question 13

Commercial paper

Answer 13

A short-term, negotiable, unsecured promissory note that represents a debt obligation of the issuer.

Question 14

Credit-linked note (CLN)

Answer 14

Fixed-income security in which the holder of the security has the right to withhold payment of the full amount due at maturity if a credit event occurs

Question 15

Firm commitment offering

Answer 15

A type of securities issue mechanism in which the investment bank guarantees the sale of the securities at an offering price that is negotiated with the issuer.

Question 16

Grey Market

Answer 16

The forward market for bonds about to be issued.

Question 17

Guarantee certificate

Answer 17

A type of structured financial instrument that provides investors capita protection. It combines a zero-coupon bond and a call option on some underlying asset.

Question 18

Haircut

Answer 18

The difference between the market value of the security used as collateral and the value of the loan.

Question 19

Interbank market

Answer 19

The market of loans and deposits between banks for maturities ranging from overnight to one year.

Question 20

Interbank money market

Answer 20

The market of loans and deposits between banks for maturities ranging from overnight to one year.

Question 21

Inverse floater

Answer 21

A type of leverage structured financial instrument. The cash flows are adjusted periodically and move in the opposite direction of changes in the reference rate.

Question 22

London interbank offered rate (LIBOR)

Answer 22

Collective name for multiple rates at which a select set of banks believe they could borrow unsecured funds from other banks in the London interbank market for different currencies and different borrowing periods ranging from overnight to one year.

Question 23

Medium-term note

Answer 23

A corporate bond offered continuously to investors by an agent of the issuer, designed to fill the funding gap between commercial paper and long-term bonds.

Question 24

Municipal Bonds

Answer 24

A type of non-sovereign bond issued by a state or local government in the United States. It is very often (but not always) offers income tax exemptions.

Question 25

Munis

Answer 25

A type of non-sovereign bond issued by a local or state government in the United States. It very often (but not always) offers income tax exemptions.

Question 26

Non-Sovereign Bonds

Answer 26

A bond issued by a government below the national level, such as a province, region, state, or city.

Question 27

Non-Sovereign Govt Bonds

Answer 27

A bond issued by a government below the national level, such as a province, region, state, or city.

Question 28

On-the-run

Answer 28

The most recently issued and most actively traded sovereign securities.

Question 29

Open market operations

Answer 29

The purchase or sale of bonds by the national central bank to implement monetary policy. The bonds traded are usually sovereign bonds issued by the national government.

Question 30

Organized Exchange

Answer 30

A securities marketplace where buyers and seller can meet to arrange their trades

Question 31

Over-the-counter(OTC) markets

Answer 31

A decentralized market where buy and sell orders initiated from various locations are matched trough a communications network.

Question 32

Primary bond markets

Answer 32

Markets in which issuer first sell bonds to investors to raise capital.

Question 33

Primary dealers

Answer 33

Financial institutions that are authorized to deal in new issues of sovereign bonds that serve primarily as trading counter parties of the office responsible for issuing sovereign bonds.

Question 34

Private placement

Answer 34

Typically, a non-underwritten, unregistered offering off securities that are sold only to an investor or small group of investors. It can be accomplished directly between the issuer and the investor(s) or through an investment bank.

Question 35

Public Offer

Answer 35

An offering of securities in which any member of the public may buy the securities.

Question 36

Public offering

Answer 36

An offering of securities in which any member of the public may buy the securities.

Question 37

Quasi-Government Bonds

Answer 37

A bond issued by an entity that is either owned or sponsored by a national government.

Question 38

Repo

Answer 38

A form of collaterized loan involving the sale of a security with a simultaneous agreement by the seller to buy the same security back from the purchaser at an agreed-on price and future date. The party who sells the security at the inception of the repurchase agreement and buys it back at maturity is borrowing money from the other party, and the security sold and subsequently repurchased represents the collateral.

Question 39

Repo Margin

Answer 39

The difference between the market value of the security used as collateral and the value of the loan.

Question 40

Repo Rate

Answer 40

The interest rate in a repurchase agreement

Question 41

Repurchase Agreement

Answer 41

A form of collaterized loan involving the sale of a security with a simultaneous agreement by the seller to buy the same security back from the purchaser at an agreed-on price and future date. The party who sells the security at the inception of the repurchase agreement and buys it back at maturity is borrowing money from the other party, and the security sold and subsequently repurchased represents the collateral.

Question 42

Repurchase date

Answer 42

The date when the party who sold the security at the inception of a repurchase agreement buys the security back from the cash lending counterparty

Question 43

Repurchase price

Answer 43

The price at which the the party who sold the security at the inception of the repurchase agreement buys the security back from the cash lending counter party

Question 44

Reverse repo

Answer 44

A repurchase agreement viewed from the perspective of the cash lending counterparty.

Question 45

Reverse repurchase agreement

Answer 45

A repurchase agreement viewed from the perspective of the cash lending counterparty.

Question 46

Secondary bond markets

Answer 46

Markets in which existing bonds are traded among investors.

Question 47

Serial maturity structure

Answer 47

Structure for a bond issue in which maturity dates are spread out during the bonds life; a stated number of bonds mature and are paid off each year before final maturity.

Question 48

Settlement

Answer 48

The process that occurs after a trade is completed, the securities are passed to the buyer, and payment is received by the seller.

Question 49

Shelf registration

Answer 49

Type of public offering that allows the issuer to file a single, all encompassing offering circular that covers a series of bond issues.

Question 50

Sovereign

Answer 50

A bond issued by a national government.

Question 51

Sovereign bond

Answer 51

Bond issued by a national government.

Question 52

Structured financial instruments

Answer 52

Financial instruments that share common attribute of repackaging risks. Structured financial instruments such as capital protected, yield enhancement, participation and leveraged instruments.

Question 53

Supranational Bonds

Answer 53

A bond issued by a supranational agency such as the world bank.

Question 54

Syndicated loans

Answer 54

Loans from a group of lenders to a single borrower

Question 55

Syndicated offering

Answer 55

A bond issue that is underwritten by a group of investment banks.

Question 56

Term maturity structure

Answer 56

Structure for a bond issue in which the bonds notional principal is paid off in a lump sum at maturity.

Question 57

Underwriter

Answer 57

A firm usually an investment bank, that takes the risk of buying the newly issued securities from the issuer, and then reselling them to investors or to dealers, thus guaranteeing the sale of the securities at the offering price negotiated with the issuer.

Question 58

Underwritten offering

Answer 58

A type of securities issue mechanism in which the investment bank guarantees the sale of the securities at an offering price that is negotiated with the issuer.