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Fixed Income > Untitled spreadsheet - Sheet1 > Flashcards

Untitled spreadsheet - Sheet1 Flashcards

2
Q

2’s

A

2yr notes

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3
Q

5’s

A

5yr notes

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4
Q

10’s

A

10yr notes

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5
Q

ABX Index

A

A series of credit default swaps based on 20 bonds comprised of subprime mortgages.

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6
Q

Across the Curve

A

Every bond in the yield curve.

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7
Q

Back End

A

The long end of the yield curve. The opposite ofFront End.

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8
Q

Basis Point (BP)

A

.01%

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9
Q

Belly

A

The intermediate part of the yield curve. SeeWings.

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10
Q

Beta

A

a number that measures the correlation if the returns of a security or portfolio to the returns of the market. A beta of zero means there is no correlation. A positive beta indicates that the asset moves in the same direction as the market, and a negative beta means the asset moves in the opposite direction of the market.

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11
Q

Big Bid

A

High demand for a security.

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12
Q

Breakeven Curve

A

A yield curve of the yield spread betweenTIPSandNominals.

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13
Q

Cheapest to Deliver (CTD)

A

For a futures contract that can be settled by the delivery of more than one debt issue, this is the issue that is most profitable (cheapest) to deliver.

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14
Q

Capitulation

A

To give up on trying to recover market losses by exiting from a losing trade.

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15
Q

CapU

A

Short for capacity utilization, an economic indicator the measures the percentage of current economic output to the potential maximum output.

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16
Q

Carry

A

The accrued interest minus the cost of financing a securities position.

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17
Q

Cash Bonds

A

Actual bonds as opposed to bond futures.

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18
Q

Consolidate (Consolidative)

A

A downward correction after a market has been rising.

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19
Q

Convexity Buying

A

Whenconvexity playersbuy treasuries in a falling rate environment to hedge against the risk ofnegative convexity. The opposite ofConvexity Selling. Also referred to asConvexity Hedging.

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20
Q

Convexity Flows

A

Convexity buyingorselling.

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21
Q

Convexity Paying

A

SeeConvexity Selling.

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22
Q

Convexity Players

A

Mortgage Backed Securities investors, mortgage servicers, and mortgage relatedGSEsthat use treasuries to hedge against the risk ofnegative convexity. Convexity players will buy treasuries in a falling rate environment because the price of the treasuries will increase and offset the effects of thenegative convexityof the mortgages.

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23
Q

Convexity Selling

A

Whenconvexity playerssell treasuries in a rising rate environment to unwind hedges that they put on to hedge against the risk ofnegative convexity. The opposite ofconvexity buying.

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24
Q

Credit Default Swap (CDS)

A

A swap contract in which the buyer purchases protection against the default of a credit instrument from the swap seller.

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25
Q

Decent Bid

A

Decent demand for a security.

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26
Q

Directs

A

A direct bidder in a treasury auction- a primary dealer. The opposite ofIndirects.

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27
Q

Dove (Dovish)

A

Used by traders to describe the Federal Reserve FOMC attitudes towards interest rates to indicate a desire to have low interest rates; the opposite ofHawk (Hawkish).

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28
Q

Fast Money

A

Leveraged buying of securities, typically by hedge funds. The opposite ofReal Money.

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29
Q

Flatter (Flatten)

A

Used by traders to describe changes in the yield curve to indicate a decrease in the difference short-term rates and long-term rates; the opposite ofSteeper.

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30
Q

Flight to Quality

A

A phenomenon in which investors sell riskier assets into safer assets (often short-term U.S. Treasuries) during times of economic uncertainty and fear.

31
Q

Flows

A

The flow of money into or out of a market.

32
Q

Front End

A

The short end of the yield curve. The opposite ofBack End.

33
Q

Good Bid

A

Good demand for a security.

34
Q

Great Bid

A

Great demand for a security.

35
Q

Hawk (Hawkish)

A

Used by traders to describe the Federal Reserve FOMC attitudes towards interest rates to indicate a desire to have high interest rates. The opposite ofDovish.

36
Q

HC

A

Short for high coupon.

37
Q

Hit

A

When a trader takes a market maker’s bid and sells the security.

38
Q

Implied Volatility (IV)

A

An estimated measure of the volatility of a security’s price. Implied volatility generally increases in a bear market, and decreases in a bull market.

39
Q

Indexers

A

Money managers that create portfolios to match an index like the Lehman Aggregate Bond Index. Similar concepts exist in the equity markets when money managers are indexed to the S&P 500.

40
Q

Indirects

A

An indirect bidder in a treasury auction that places their bid through a dealer. Because they are often foreign buyers of treasuries, traders often use this as an indication of how much foreign buying there has been in a treasury auction. The opposite ofDirects.

41
Q

Lift

A

When a trader takes a market maker’s offer and buys the security.

42
Q

Liquidity Premium

A

Traders prefer to buy highly liquid securities over less liquid securities. As a result, these liquid securities usually trade at higher prices. This price difference is the liquidity premium.

43
Q

Long End

A

A reference to the long end of the yield curve, or longer maturity bonds.

44
Q

Loop Effect

A

The phenomenon that certain technical factors will cause market price movements to feed upon themselves and accelerate the price movement. For example, rising prices can cause short sellers to buy into the rally to cover their shorts and limit their losses. This buying accelerates the rising prices.

45
Q

Negative Convexity

A

A phenomenon attributable to callable bonds (particularly mortgage back securities) that causes the price to increase less, or even decrease, when interest rates decrease. The reason is that it becomes more likely that the principal is likely to be repaid and will have to be reinvested at the new lower rates.

46
Q

Nominals

A

Regular treasury securities

47
Q

Old Bonds

A

Off -the-run bonds, as opposed to current or on-the-run bonds.

48
Q

Option Adjusted Duration (OAD)

A

The measurement of duration adjusted for the first option (put or call, but usually a call) provision. Adjusting for a call provision will shorten the duration of a bond.

49
Q

Option Adjusted Spread (OAS)

A

A spread to the treasury yield that accounts for imbedded options in a bond that could result in an early redemption. It is usually used to account for the potential negative impact of mortgage prepayments on anMBSwhen interest rates fluctuate.

50
Q

Play Large (Big)

A

When the market aggressively participates in a treasury auction.

51
Q

Play Small

A

When the market does not aggressively participate in a treasury auction.

52
Q

Prime X Index

A

An index that allows investors to take positions on prime mortgage-backed securities throughcredit default swaps.

53
Q

Real Money

A

Unleveraged buying of securities typically by money managers. The opposite ofFast Money.

54
Q

Real Rates

A

The real level of interest rates that is free of credit risk premium and inflation premium. Also referred to asReal Yield.

55
Q

Real Rate Longs

A

A trade position of being longTIPS.

56
Q

Real Yield Curve

A

The yield curve comprised ofTIPS, orreal yields.

57
Q

Rock

A

Trader lingo forpar. For example,I just traded some 10’s at the rock!

58
Q

Secular

A

Long term.

59
Q

Short End

A

A reference to the short end of the yield curve, or shorter maturity bonds.

60
Q

Steeper (Steepen)

A

Used by traders to describe changes in the yield curve to indicate an increase in the difference short-term rates and long-term rates; the opposite ofFlatter.

61
Q

Stop

A

The highest yield accepted in a treasury auction.

62
Q

Swap Spreads

A

A swap is an over the counter agreement to exchange cash flows. Most often it is an exchange of a fixed interest rate payment with a floating one. There is default risk in a swap. The swap spread is the yield spread between swaps and the default risk free return of treasuries. Swap spreads are an indication of the markets aversion to risk. Because of the size and liquidity of the swap market, it is thought of as a better indicator than credit spread.

63
Q

Tail

A

The spread, in basis points, between the when-issued yield of a treasury security just prior to auction and the highest yield (theStop) of the auction. A tail indicates weak demand with demand being inversely related to the size of the tail (the larger the tail, the less demand for the bond).

64
Q

Tailed

A

An auction that resulted in atail, indicating a lack of demand.

65
Q

Tick

A

In reference to the price of a bond as expressed as a percentage of par, a tick is 1/32ndor .03125 of a point.

66
Q

Two-Way Flows

A

Active buying and selling from investors in a security.

67
Q

Ultralongs

A

The 30-year bond.

68
Q

Waving it in

A

When a trader likes a security so much that they want to buy large quantities. Also referred to asbacking up the truck.

69
Q

Wings

A

The short end and long end of the yield curve. Seebelly.

70
Q

Yard

A

A billion dollar trade.

71
Q

Zero Volatility Option Adjusted Spread

A

A measure of cash flow spread of anMBSover the treasury yield curve that takes into account the prepayment risk of theMBS. A measure of cash flow spread of anMBSover the treasury yield curve that takes into account the prepayment risk of theMBS.

Fixed Income (2 decks)

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