What is a Repurchase Agreement? Repurchase agreements are commonly used in the financial markets to raise short-term funds. They are particularly popular among banks, hedge funds, and other financial institutions. These agreements provide liquidity and allow market participants to manage their short-term cash needs or invest excess cash. Definition, Examples, … …
Principal Definition in Loans Bonds Investments and Transactions What is Principal? Principal refers to the original amount of money that is borrowed, invested, or transacted. It represents the initial sum of money involved in a financial transaction before any interest, returns, or profits are added or subtracted. In the case … …
What is Price Value of a Basis Point (PVBP) and How It is Used in Fixed Income Definition of Price Value of a Basis Point (PVBP) The PVBP is calculated by taking the derivative of the bond’s price with respect to its yield, multiplied by the bond’s face value. Mathematically, … …
What is a Perpetual Bond? One of the key features of perpetual bonds is that they are not required to be repaid by the issuer. This means that the issuer does not have to worry about refinancing or repaying the principal amount. As a result, perpetual bonds are often considered … …
What is Original Issue Discount (OID)? Original Issue Discount (OID) refers to the difference between the face value of a debt instrument and its issue price. It is a form of interest income that is earned over the life of the debt instrument, but is not paid periodically like traditional … …
What is Operation Twist? Operation Twist is a monetary policy tool used by central banks, particularly the Federal Reserve in the United States, to influence interest rates and stimulate economic growth. It involves the buying and selling of government securities in order to manipulate the yield curve. The Purpose of … …
Nominal Yield Definition and How it Works The nominal yield represents the fixed income that an investor can expect to receive from a bond. It is determined at the time of issuance and remains constant throughout the life of the bond. For example, if a bond has a face value … …
What is Net Interest Income? Net Interest Income is a financial metric that measures the difference between the interest income earned by a financial institution and the interest expenses it incurs on its borrowings and deposits. It is a key indicator of a bank’s profitability and is often used by … …
Negative Covenant Definition and Examples A negative covenant is a type of agreement or restriction that is included in a contract or bond issue. It is designed to protect the interests of the bondholders or lenders by limiting the actions that the issuer or borrower can take. The purpose of … …
Negative Convexity: What is it? Negative convexity is a concept in the field of fixed income that refers to the relationship between bond prices and interest rates. When a bond has negative convexity, it means that the bond’s price does not increase as much as it decreases when interest rates … …
What are Money Markets? The money market is a segment of the financial market where short-term borrowing and lending of funds take place. It is a market for highly liquid and low-risk instruments, typically with maturities of one year or less. Money markets play a crucial role in the overall … …
Modified Duration: Formula, Calculation, and How to Use It What is Modified Duration? Modified duration is a measure of the price sensitivity of a bond or a bond portfolio to changes in interest rates. It takes into account both the coupon payments and the final principal payment of the bond. … …
Overview of Medium Term Note Maturity Ranges MTNs offer a range of maturity options to suit different investment needs. The maturity range refers to the length of time until the note reaches its full repayment. The specific maturity range can vary depending on the issuer and the terms of the … …
Maturity Definition and Examples Maturity refers to the date on which a financial instrument, such as a bond or a certificate of deposit (CD), becomes due and is repaid to the investor or the holder of the instrument. It represents the end of the investment period and the point at … …
How Make-Whole Call Provision Works A make-whole call provision is a feature commonly found in bond agreements that allows the issuer to redeem the bonds before their maturity date. This provision is designed to compensate bondholders for the loss of future interest payments that they would have received if the … …
Definition of Macaulay Duration Macaulay Duration is a financial concept that measures the weighted average time it takes for an investor to recoup their initial investment in a fixed income security, such as a bond or a loan. It is named after Frederick Macaulay, an economist who developed this concept … …
What is Loan Participation Note LPN? A Loan Participation Note (LPN) is a type of fixed income security that allows investors to participate in a loan or a pool of loans. It is a form of securitization where the underlying assets are loans instead of traditional securities like stocks or … …
What are Liberty Bonds? Liberty Bonds are a type of fixed income investment that were first introduced during World War I to finance the war efforts. They were issued by the government to raise funds from the public, allowing individuals to lend money to the government in exchange for regular … …
Why Invest in Kiwi Bonds? Investing in Kiwi Bonds offers numerous benefits that make them an attractive option for investors. Here are some reasons why you should consider investing in Kiwi Bonds: Stable and Secure Investment Furthermore, Kiwi Bonds are backed by the full faith and credit of the New … …
Functionality of Kicker The functionality of a kicker is to enhance the overall return on investment for the investor. It acts as an incentive or bonus for the investor to participate in the investment opportunity. The kicker is usually structured as an additional component of the investment, separate from the … …
Overview of Kangaroo Bonds Kangaroo Bonds are a unique type of bond that is issued in the Australian market by foreign entities. These bonds are denominated in Australian dollars, making them attractive to investors who want exposure to the Australian market without the need to convert their currency. One of … …
Joint Bond: Definition, Mechanics, and Real-Life Examples A joint bond is a type of financial instrument that is issued by multiple entities or borrowers together. It is a collaborative effort where two or more parties come together to raise capital by issuing a single bond. Joint bonds are commonly used … …
Overview of Japanese Government Bond JGB Japanese Government Bond (JGB) is a fixed-income security issued by the government of Japan. It is considered one of the safest investments in the world due to the financial stability of the Japanese government. JGBs are issued in various maturities, ranging from short-term to … …
What is Investment Grade Credit Rating? An investment grade credit rating is a measure of the creditworthiness of a company or government entity. It is an assessment made by credit rating agencies, such as Standard & Poor’s, Moody’s, and Fitch Ratings, that evaluates the likelihood that the entity will default … …
What is an Inverted Yield Curve? An inverted yield curve is a term used in finance to describe a situation where the yields on short-term bonds are higher than the yields on long-term bonds. In other words, it is a situation where the interest rates on short-term loans are higher … …
International Bond Investing: A Comprehensive Guide International bond investing is a strategy that involves investing in bonds issued by foreign governments, corporations, or other entities. It offers investors the opportunity to diversify their portfolios and potentially earn higher returns compared to domestic bond investments. However, it also comes with its … …
What is Interest Rate Risk? Interest rate risk refers to the potential for changes in interest rates to affect the value of fixed income investments, such as bonds. When interest rates rise, the value of existing bonds typically decreases, while when interest rates fall, the value of existing bonds typically … …
What is an Index-Linked Bond? The purpose of an index-linked bond is to provide investors with a hedge against inflation. Inflation erodes the purchasing power of money over time, so by linking the bond’s payments to an inflation index, investors can ensure that their investment keeps pace with rising prices. … …
How Debt Financing Works: Examples, Costs, Pros & Cons Debt financing is a method of raising capital by borrowing money from lenders. It is a common practice for businesses and individuals to use debt financing to fund various projects, investments, or expenses. This article will provide an overview of how … …