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balance of trade

The difference between the value of a region's imports and exports during a specific period of time. If the United States imports more than it exports, it has a trade deficit; if the U.S. exports more than it imports it has a trade surplus.

barbell strategy

Barbell strategy is used as a way to earn more interest without taking more risk when investing in bonds. In a barbell strategy, an investor invests in short-term bonds, say perhaps some maturing in one to two years and long-term bonds such as those maturing in 30 years. When shorter-term bonds come due, the investor replaces them with other short-term bonds, thus keeping a balance between short and long term bonds. The goal is to earn more interest without taking more risk than having a portfolio of intermediate term bonds only.

basis point

Smallest measure used in quoting yields on bonds and notes. One basis point is 0.01% of yield. For example, a bond’s yield that changed from 6.52% to 7.19% would be said to have moved 67 basis points.

basis price

The price of a security expressed in yield, or percentage of return on the investment. Price differentials in municipal bonds are usually expressed in multiples of 5/100 of 1%, or “05."

bearer security

A security that has no identification as to owner. It is presumed to be owned by the bearer or the person who holds it. Bearer securities are freely and easily negotiable since ownership can quickly be transferred from seller to buyer. Tax-exempt municipal bonds are no longer being issued in bearer form.

behavioral finance

Behavioral finance is the study of why investors act the way they do and how such behavior affects the markets. Behavioral finance theorists use the disciplines of economics and psychology to suggest that the investor behavior that affects market prices may be not be based on such “rational” factors as analysis of the strength or performance of a company.

benchmark

A bond whose terms are used for comparison with other bonds of similar maturity. The global financial market typically looks to U.S Treasury securities as benchmarks.

beneficial owner

One who benefits from owning a security, even if the security’s title of ownership is in the name of a broker or bank ("street name").

bid

Price at which a buyer is willing to purchase a security.

bid list

Schedule of bonds distributed by holder or broker to dealer in order to get a bid, or current price, on the bonds.

bill

A short-term direct obligation of the U.S. Treasury that has a maturity of not more than one year (for example, 13-, 26- or 52-week maturity).

blended yield to maturity

The combination and average of two points on the yield curve to find a yield at the midpoint.

blue-sky memorandum

A memorandum for use by the account specifying the way a specific issue will be treated under state securities laws, frequently of all 50 states, Puerto Rico, and the District of Columbia. This memorandum is prepared first in preliminary form, which may note that certain steps need to be taken in various jurisdictions in order to qualify the issue for sale within these jurisdictions. The memorandum is then issued in supplemental form and generally the supplemental form reports that the required actions in the various jurisdictions have been taken.

bond

(1) The written evidence of debt, bearing a stated rate or stated rates of interest, or stating a formula for determining that rate, and maturing on a date certain, on which date and upon presentation a fixed sum of money plus interest (usually represented by interest coupons attached to the bond) is payable to the holder or owner. A municipal bond issue is usually comprised of many bonds that mature over a period of years; (2) For purposes of computations tied in to “per bond,” a $1,000 increment of an issue (no matter what the actual denominations are); (3) Bonds are long-term securities with a maturity of greater than one year.

bond anticipation note (BAN)

A note issued in anticipation of later issuance of bonds, usually payable from the proceeds of the sale of the bonds or of renewal notes. BANs can also be general obligations of the issuer.

bond bank

Agencies created by a few states to buy entire issues of bonds of municipalities. The purchases are financed by the issuance of bonds by the bond bank. The purpose is to provide better market access for small, lesser-known issuers.

The Bond Buyer™

The daily newspaper of the municipal bond market. The Bond Buyer publishes news stories, new-issuer calendars, results of bond sales, notices of redemptions and other items of interest to the market. The Bond Buyer also publishes weekly indexes of bond yields that are widely followed by the market.

bond counsel

A lawyer or law firm that delivers a legal opinion which deals with the issuer’s authorization to issue bonds and the tax-exempt nature of the bond. Bond counsel is retained by the issuer.

bond equivalent yield

An adjustment to a CMO yield which reflects its greater present value, created because CMOs pay monthly or quarterly interest, as opposed to semiannual interest payments on most other types of bonds.

bond funds

Registered investment companies whose assets are invested in diversified portfolios of bonds.

bond insurance

Legal commitment by insurance company to make scheduled payment of interest and principal of a bond issue in the event that the issuer is unable to make those payments on time. The cost of insurance is usually paid by the issuer in case of a new issue of bonds, and the insurance is not purchased unless the cost is far more than offset by the lower interest rate that can be incurred by the use of the insurance.

bond purchase agreement (BPA)

The contract between the issuer and the underwriter setting forth the terms of the sale, including the price of the bonds, the interest rate or rates which the bonds are to bear and the conditions to closing. It is also called the purchase contract.

bond resolution

Issuer legal document which details the mechanics of the bond issuer, security features, covenants, events of default and other key features of the issue’s legal structure. Indentures and trust agreements are functionally similar types of documents, and the use of each depends on the individual issue and issuer.

bond swap

The sale of a bond and the purchase of another bond of similar market value. Swaps may be made to establish a tax loss, upgrade credit quality, extend or shorten maturity, etc.

bond year

An element in calculating average life of an issue and in calculating net interest cost and net interest rate on an issue. A bond year is the number of 12-month intervals between the dated date of the bond and its maturity date, measured in $1,000 increments. For example, the “bond years” allocable to a $5,000 bond dated April 1, 2000, and maturing June 1, 2001, is 5.830 [1.166 (14 months divided by 12 months) x 5 (number of $1,000 increments in $5,000 bond)]. Usual computations include “bond years” per maturity or per an interest rate, and total “bond years” for the issue.

book entry

A method of registering and transferring ownership of securities electronically which eliminates the need for physical certificates.

bought deals

GSE-issued securities sold through negotiated direct placements or competitive bids, with terms and size determined by the immediate needs of the GSE.

broker

A firm or person who acts as an intermediary by buying and selling securities to dealers on an agency basis rather than for its own account.

Build America Bonds (BABs)

Build America Bonds (BABs) are new taxable municipal bonds that were authorized under the American Recovery and Reinvestment Act of 2009. Unlike municipal bonds, most of which are tax exempt, BABs are taxable bonds, which means that the interest is subject to taxation. Proceeds of these bonds can be used for the most of the same purposes as proceeds of regular tax-exempt government bonds. The two types of BABs are: Direct Payment bonds on which the United States Treasury Department pays state or local government issuers a payment equal to 35 percent of the coupon interest payments on such bonds, and Tax Credit bonds on which the bond holders receive a tax credit equal to the 35 percent of interest on such bonds.

bullet bond

A security with a fixed maturity and no call feature.

buy and hold

A strategy for investing in which investors buy a bond and hold the bond until the date of maturity when the investor receives principal back and interest, if any.

Last Updated on Wednesday, 09 June 2010 07:26