Glossary · 90 terms
Fixed Income
All fixed income terms in the EquitiesAmerica.com glossary — plain-English definitions for American investors.
Agency Bond(agency debt)
An agency bond is a debt security issued by a U.S. government-sponsored enterprise (GSE) or a federally related institution, such as Fannie Mae, Freddie Mac, or the Federal Home Loan Banks, typically offering yields modestly above comparable Treasury securities in exchange for a small credit or liquidity premium.
Amortizing Bond(self-amortizing bond)
An amortizing bond is a debt instrument that repays its principal gradually over the life of the bond through scheduled periodic payments rather than returning the entire face value in a single lump sum at maturity, similar in structure to a home mortgage or auto loan.
Asset-Backed Security(ABS)
An asset-backed security (ABS) is a fixed income instrument created by pooling financial assets that generate predictable cash flows — such as auto loans, credit card receivables, student loans, or equipment leases — and issuing securities backed by those cash flows to investors.
Barbell Strategy (Fixed Income)(barbell bond strategy)
The barbell strategy in fixed income is a portfolio construction approach that concentrates bond holdings at the two extremes of the maturity spectrum — very short-term and very long-term maturities — while holding little or nothing in the intermediate range, creating a bimodal duration and yield profile designed to balance liquidity with income.
Basis Trade (Treasuries)(cash-futures basis)
A Treasury basis trade is a relative value strategy that involves simultaneously buying a Treasury security in the cash market and selling the corresponding Treasury futures contract — or the reverse — to profit from the convergence or divergence of the spread between cash bond prices and the futures price adjusted for carry and the conversion factor.
Bond(fixed income security)
A bond is a fixed income security that represents a loan made by an investor to a borrower — typically a corporation or government — in exchange for periodic interest payments and the return of the principal at maturity.
Bond Ladder(laddered bond portfolio)
A bond ladder is a fixed income portfolio strategy in which an investor holds bonds with sequential maturity dates spread over multiple years, so that a portion of principal matures and becomes available for reinvestment at regular intervals, managing interest rate risk through diversification across maturities rather than concentration at any single point.
Bond Rating(credit rating)
A bond rating is an independent assessment of a bond issuer's creditworthiness and ability to meet its debt obligations, assigned by credit rating agencies such as Moody's, S&P Global, and Fitch on standardized letter-grade scales.
Build America Bond(BAB)
Build America Bonds (BABs) were taxable municipal bonds introduced under the American Recovery and Reinvestment Act of 2009 that provided federal interest subsidies to state and local government issuers, allowing them to access the broader taxable bond market at competitive rates while supporting infrastructure investment during the post-financial-crisis recovery.
Bullet Bond(straight bond)
A bullet bond is a fixed income instrument that pays periodic interest coupons throughout its term and returns its entire principal in a single payment at maturity, with no scheduled amortization or early redemption provisions — a structure that is the standard form for U.S. Treasury notes, most investment-grade corporate bonds, and many municipal bonds.
Butterfly Trade (Bonds)(bond butterfly)
A butterfly trade in the bond market is a relative value position that simultaneously takes opposite directional exposures at the wings and body of the yield curve — typically buying the intermediate maturity (body) and selling the short and long maturities (wings), or the reverse — structured to be duration-neutral and designed to profit from changes in curve curvature.
Call Provision (Bond)(call feature)
A call provision is a clause in a bond indenture that grants the issuer the right, but not the obligation, to redeem the bond before its stated maturity date at a predetermined price or according to a defined schedule, allowing the issuer to refinance at lower rates but exposing bondholders to reinvestment risk.
Callable Bond(redeemable bond)
A callable bond is a bond that grants the issuer the right to redeem the bond at a specified call price before the stated maturity date, typically at par or a small premium, allowing the issuer to refinance if interest rates fall.
Catastrophe Bond(cat bond)
A Catastrophe Bond (cat bond) is a high-yield debt instrument that transfers insurance risk — primarily from natural catastrophes such as hurricanes, earthquakes, or wildfires — from insurance and reinsurance companies to capital markets investors, with principal at risk if a defined catastrophe event occurs.
Cheapest to Deliver (Futures)(CTD bond)
The cheapest to deliver (CTD) bond is the specific Treasury security from the deliverable basket that maximizes the net proceeds to the short futures position holder when physically settling a Treasury futures contract, making it the rational choice for delivery and the primary determinant of futures pricing.
Collateralized Loan Obligation(CLO)
A collateralized loan obligation (CLO) is a structured credit security backed by a diversified pool of leveraged loans — typically floating-rate loans made to below-investment-grade corporate borrowers — divided into tranches with different risk and return profiles that are sold to institutional investors.
Conversion Factor (Bond Futures)(futures conversion factor)
A conversion factor is a standardizing multiplier assigned by the CME Group to each Treasury security eligible for delivery into a Treasury futures contract, computed as the price at which the deliverable bond would trade to yield 6% — the notional coupon assumed by the futures contract — on the first day of the delivery month.
Convertible Bond(convertible note)
A convertible bond is a corporate bond that gives the holder the right to convert the bond into a specified number of the issuer's common shares at a predetermined price, combining fixed income characteristics with equity upside potential.
Convexity
Convexity measures the curvature of the relationship between a bond's price and its yield, capturing how duration itself changes as interest rates move and indicating that for a given yield change, the actual price change differs from the linear duration estimate.
Corporate Bond(corporate debt)
A corporate bond is a debt security issued by a corporation to raise capital, offering investors regular coupon payments and the return of principal at maturity in exchange for lending money to the company.
Coupon Rate(stated rate)
The coupon rate is the annual interest rate paid by a bond issuer on the face value of the bond, expressed as a percentage and typically distributed to bondholders in semi-annual payments.
Covenant (Bond)(bond covenant)
A bond covenant is a legally binding contractual provision in a bond indenture that restricts or requires specific actions by the issuer, protecting bondholders by limiting the borrower's ability to take on additional debt, pay dividends, or engage in asset sales beyond defined thresholds.
Credit Default Swap Spread(CDS spread)
The credit default swap (CDS) spread is the annual premium, expressed in basis points, that the buyer of protection pays to the seller in a credit default swap contract, and it functions as a market-based measure of the implied probability of default for a specific reference entity.
Credit Spread (Bonds)(bond spread)
A credit spread is the yield difference between a corporate or non-government bond and a comparable-maturity US Treasury, compensating investors for the additional credit risk of lending to a non-sovereign borrower.
Cross-Currency Swap(currency swap)
A cross-currency swap is a derivatives contract in which two parties exchange principal and interest payments denominated in different currencies over the life of the agreement, enabling borrowers to access financing in a foreign currency and hedgers to eliminate foreign exchange rate risk on cross-border bond exposures.
Current Yield(running yield)
Current yield is the annual coupon income of a bond expressed as a percentage of its current market price, providing a simple snapshot of the income return an investor earns on the actual amount invested — but ignoring any capital gain or loss from the difference between the purchase price and face value at maturity.
Curve Flattener(yield curve flattener)
A curve flattener is a fixed income trade that profits from a narrowing of the yield spread between a longer-maturity and a shorter-maturity Treasury, typically implemented by being short the short end and long the long end of the yield curve in a duration-weighted structure.
Curve Steepener(2s10s steepener)
A curve steepener is a fixed income trade structured to profit from a widening of the yield spread between a longer-maturity Treasury and a shorter-maturity Treasury, implemented by being long the short end of the curve and short the long end, typically duration-weighted to isolate the slope change rather than the directional rate move.
Deliverable Basket(futures eligible basket)
The deliverable basket is the set of Treasury securities that are eligible for physical delivery into a given Treasury futures contract at expiration, as defined by the CME Group based on maturity range and other criteria, with the short futures holder choosing which eligible security to actually deliver.
Dim Sum Bond(offshore RMB bond)
A Dim Sum bond is a bond denominated in Chinese renminbi (CNY) but issued and traded outside mainland China, primarily in Hong Kong, allowing international investors to gain renminbi exposure without accessing onshore Chinese bond markets subject to capital controls.
Dollar Duration (DV01)(DV01)
Dollar duration, commonly called DV01 (dollar value of a basis point) or PVBP (price value of a basis point), is the absolute dollar change in the value of a bond or portfolio for a one-basis-point (0.01%) decrease in yield, providing an intuitive and directly actionable measure of interest rate risk in monetary terms.
Duration(Macaulay duration)
Duration is a measure of a bond's price sensitivity to changes in interest rates, expressed in years; the higher the duration, the more a bond's price will change for a given shift in yields.
Effective Duration(option-effective duration)
Effective duration is a measure of a bond's price sensitivity to a parallel shift in the yield curve that accounts for changes in a bond's cash flows when rates change — particularly relevant for bonds with embedded options such as callable bonds, putable bonds, and mortgage-backed securities — making it applicable where modified duration would be inaccurate.
Empirical Duration(statistical duration)
Empirical duration is a measure of a bond's actual price sensitivity to interest rate changes estimated from observed historical price and yield data via statistical regression, rather than derived analytically from the bond's cash flows, providing a reality check on model-based duration measures for instruments whose actual rate sensitivity diverges from theoretical predictions.
Eurobond(international bond)
A Eurobond is a bond issued in a currency other than that of the country in which it is issued, sold simultaneously in multiple national markets through an international syndicate of underwriters, and not subject to the withholding tax and regulatory requirements of any single national market.
Fallen Angel Bond(fallen angel)
A fallen angel bond is a corporate bond that was originally issued with an investment-grade credit rating but has subsequently been downgraded to speculative-grade (high-yield or junk) status by one or more major credit rating agencies, typically due to deterioration in the issuer's financial condition.
Floating Rate Note(FRN)
A floating rate note (FRN) is a debt security whose interest payments reset periodically based on a reference benchmark rate, such as the Secured Overnight Financing Rate (SOFR), causing coupon income to move with prevailing short-term interest rates rather than remaining fixed for the life of the bond.
General Obligation Bond(GO bond)
A general obligation bond (GO bond) is a municipal bond backed by the full faith, credit, and taxing power of the issuing government — typically a state, county, city, or school district — giving bondholders a claim against the issuer's ability to levy taxes rather than relying solely on revenues from a specific project.
Green Bond(climate bond)
A Green Bond is a fixed-income instrument whose proceeds are earmarked exclusively for projects with environmental benefits, such as renewable energy, clean transportation, sustainable water management, or climate-change adaptation.
Gross Basis(raw basis)
Gross basis is the raw difference between the clean cash price of a Treasury security and the futures settlement price multiplied by that bond's conversion factor, representing the unadjusted spread between the cash bond market and the futures market before accounting for carry.
High-Yield Bond(junk bond)
A high-yield bond — also called a junk bond — is a corporate bond rated below investment grade (below Baa3/BBB- by Moody's and S&P respectively), offering higher interest rates to compensate investors for the elevated risk of default.
I Bond (Series I Savings Bond)(I Bond)
A Series I Savings Bond, commonly called an I Bond, is a non-marketable, inflation-indexed U.S. government savings bond issued directly by the Treasury that earns a composite interest rate combining a fixed rate and a variable inflation component tied to the CPI. I Bonds are designed for individual investors seeking a low-risk inflation hedge.
Implied Repo Rate(repo implied by futures)
The implied repo rate is the annualized financing rate implied by the relationship between a Treasury bond's spot price and the futures contract into which it is deliverable, representing the return earned by buying the bond in the cash market, holding it, and delivering it into the futures contract at expiration.
Inflation Breakeven Rate(breakeven inflation rate)
The inflation breakeven rate is the difference between the nominal yield on a U.S. Treasury bond and the real yield on a comparable-maturity TIPS security, representing the average annual inflation rate at which an investor would be indifferent between holding the nominal Treasury or the inflation-protected TIPS over the investment horizon.
Interest Rate Swap(IRS)
An interest rate swap is an over-the-counter derivatives contract between two parties to exchange a stream of fixed interest payments for a stream of floating interest payments — or vice versa — based on a specified notional principal amount and a defined schedule of settlement dates.
Investment Grade(investment-grade bond)
Investment grade refers to bonds or issuers rated Baa3/BBB- or higher by Moody's and S&P respectively, indicating a relatively low risk of default and making the securities eligible for purchase by many institutional investors governed by strict credit quality mandates.
Junk Bond(high-yield bond)
A junk bond, formally referred to as a high-yield bond or speculative-grade bond, is a corporate debt security rated below investment-grade by major credit rating agencies — below BBB- by S&P Global Ratings or below Baa3 by Moody's — reflecting a higher probability of default and compensating investors with elevated interest rates.
Key Rate Duration(KRD)
Key rate duration measures a bond portfolio's or security's price sensitivity to a change in yield at a specific maturity point on the yield curve while holding all other maturity yields constant, enabling precise identification of which parts of the yield curve a portfolio is most exposed to.
Mortgage-Backed Security(MBS)
A mortgage-backed security (MBS) is a fixed income instrument created by pooling a collection of residential or commercial mortgage loans and selling interests in that pool to investors, with the principal and interest payments from the underlying borrowers flowing through to security holders. MBS are a central component of the U.S. fixed income market.
MOVE Index(Merrill Lynch Option Volatility Estimate)
The MOVE Index (Merrill Lynch Option Volatility Estimate) is a measure of implied volatility in U.S. Treasury bond markets derived from options on one-month Treasuries across maturities, serving as the bond market's equivalent of the VIX and historically used to gauge stress and uncertainty in fixed income markets.
Municipal Bond(muni)
A municipal bond — commonly called a 'muni' — is a debt security issued by a state, city, county, or other government entity to finance public projects, and whose interest income is typically exempt from federal income tax.
Negative Convexity
Negative Convexity describes bonds whose price appreciation is capped or curtailed in falling-rate environments because embedded options — such as call provisions or mortgage prepayment rights — allow the issuer or borrower to retire the debt early, limiting the bondholder's upside.
Net Basis(adjusted basis)
Net basis is the gross basis of a Treasury bond futures position adjusted for the carry income earned over the holding period — specifically the coupon accrual minus the repo financing cost — isolating the pure optionality value embedded in the futures contract relative to the deliverable cash bond.
Nominal Yield(stated yield)
Nominal yield is the stated annual interest rate on a fixed income instrument expressed as a percentage of its face value — equivalent to the coupon rate at issuance — representing the contractual dollar return without adjustment for inflation, transaction costs, or taxes.
On-the-Run vs Off-the-Run(OTR/OFR spread)
On-the-run Treasuries are the most recently issued securities of a given maturity and serve as the current benchmark for that tenor, while off-the-run Treasuries are older issues of the same maturity that have been superseded by newer auctions and typically trade at a modest yield premium due to lower liquidity.
Option-Adjusted Duration(OAD)
Option-adjusted duration is the effective duration of a bond with an embedded option calculated using an option-adjusted spread (OAS) framework, which strips out the value of embedded options from the bond price before computing rate sensitivity, providing a model-consistent measure of interest rate risk for complex fixed income instruments.
Option-Adjusted Spread(OAS)
The Option-Adjusted Spread (OAS) is the credit spread of a bond with embedded options — such as a callable or mortgage-backed security — after stripping out the value of those options, giving a purer measure of the bond's credit and liquidity premium over Treasuries.
Par Value(face value)
Par value — also called face value or principal — is the nominal value of a bond as stated on the certificate, representing the amount the issuer promises to repay the bondholder at maturity.
Partial Duration(partial DV01)
Partial duration is a generalized term for any duration measure that captures price sensitivity to a yield change at a specific segment or point on the yield curve, of which key rate duration is the most widely used form, enabling disaggregated analysis of a portfolio's exposure to non-parallel yield curve movements.
Perpetual Bond(perp)
A perpetual bond — also called a perp or consol — is a bond with no maturity date that pays coupon interest indefinitely, with principal never formally repaid unless the issuer exercises an embedded call option or redeems the instrument voluntarily.
Present Value of a Basis Point(PVBP)
The present value of a basis point (PVBP), also known as DV01, is the change in the present value or market price of a fixed income instrument resulting from a one-basis-point shift in the relevant yield or discount rate, serving as the primary dollar-denominated measure of interest rate sensitivity used in trading, hedging, and risk management.
Primary Dealer(government securities dealer)
A primary dealer is a financial institution — typically a large commercial or investment bank — that has been designated by the Federal Reserve Bank of New York to participate directly in U.S. Treasury auctions and to serve as a counterparty in the Fed's open market operations.
Private Activity Bond(PAB)
A private activity bond (PAB) is a type of tax-exempt municipal bond issued by a state or local government to finance projects substantially used by a private entity — such as airports, affordable housing, nonprofit hospitals, or industrial facilities — with the tax-exempt status granted by Congress to encourage investment in qualifying public-benefit projects.
Puttable Bond
A puttable bond grants the bondholder the right to sell the bond back to the issuer at a predetermined price — typically par — before maturity, providing downside protection if interest rates rise or if the issuer's credit quality deteriorates.
Real Yield(inflation-adjusted yield)
Real yield is the return on a fixed income investment after accounting for inflation, representing the purchasing-power-adjusted compensation an investor earns; in the U.S. market it is most directly observable through the yields on Treasury Inflation-Protected Securities (TIPS), which embed automatic inflation adjustment in their principal values.
Relative Value (Fixed Income)(fixed income RV)
Relative value in fixed income is an investment approach that seeks to profit from pricing discrepancies between related fixed income securities — such as Treasuries of different maturities, on-the-run versus off-the-run bonds, or cash bonds versus futures — without taking a directional view on the overall level of interest rates.
Revenue Bond(muni revenue bond)
A revenue bond is a type of municipal bond whose principal and interest payments are secured solely by the revenues generated by a specific project or enterprise — such as a toll road, airport, water utility, or hospital — rather than by the full taxing authority of the issuing government entity.
Riding the Yield Curve(yield curve roll)
Riding the yield curve is a fixed income strategy in which an investor deliberately purchases bonds with maturities longer than their intended holding period on an upward-sloping yield curve, intending to sell the bonds before maturity to capture additional roll-down return as the bonds age to higher prices along the curve.
Roll-Down Return(rolling return)
Roll-down return is the capital gain earned on a fixed income security as it ages along an upward-sloping yield curve, progressively moving to shorter maturities where yields are lower and prices are higher, independent of any parallel shift in the overall level of interest rates.
Serial Bond(serial maturity bond)
A serial bond is a debt issuance structured so that portions of the total principal mature and are repaid at successive scheduled dates throughout the life of the bond — rather than all at once at a single maturity — making it a common structure for municipal bonds and public agency financings in the United States.
Sinking Fund Provision(sinking fund)
A sinking fund provision is a bond indenture requirement that obligates the issuer to periodically retire a specified portion of the outstanding bonds before maturity, either by purchasing bonds in the open market or by calling them at a designated sinking fund redemption price, reducing the outstanding principal over the bond's life.
Social Bond(social impact bond (labeled))
A social bond is a fixed income instrument whose proceeds are earmarked exclusively for projects generating positive social outcomes — such as affordable housing, healthcare access, education, food security, and economic empowerment for underserved populations — structured under frameworks like the ICMA Social Bond Principles.
Spread Duration
Spread Duration measures the sensitivity of a bond's or portfolio's price to a one-basis-point change in its credit spread, capturing the credit-risk analog of interest rate duration and indicating how much price impact a spread widening or tightening produces.
STRIPS (Treasury)(Treasury zero-coupon bonds)
Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) are zero-coupon bonds created by stripping the coupon and principal cash flows of eligible Treasury notes and bonds into separately tradable instruments, each representing a single future payment.
Sukuk (Islamic Bond)(Islamic bond)
Sukuk are Islamic finance certificates that comply with Sharia law by structuring returns as profit sharing or asset rental rather than interest payments, providing bondholders with an ownership interest in an underlying asset or project rather than a conventional debt claim.
Sustainability-Linked Bond(SLB)
A Sustainability-Linked Bond (SLB) is a bond whose financial terms — typically the coupon rate — are tied to the issuer's achievement of pre-defined sustainability performance targets, rather than to a specific use of proceeds.
Swap Curve(interest rate swap curve)
The swap curve is the term structure of interest rate swap rates across different maturities — typically ranging from one year to thirty years — and functions as an alternative benchmark yield curve alongside the U.S. Treasury yield curve for pricing fixed income instruments and hedging interest rate risk.
Swap Rate(fixed swap rate)
The swap rate is the fixed interest rate agreed upon by two parties in an interest rate swap contract, exchanged for a floating rate tied to a benchmark such as SOFR, and represents the market's consensus expectation of the average level of the floating rate over the life of the swap.
Swap Spread(interest rate swap spread)
A Swap Spread is the difference between the fixed rate on an interest rate swap and the yield of a U.S. Treasury bond of the same maturity, historically used as an indicator of credit risk, liquidity conditions, and the relative supply-demand dynamics between government bonds and the interest rate swap market.
TIPS (Treasury Inflation-Protected Securities)(TIPS)
Treasury Inflation-Protected Securities (TIPS) are U.S. government bonds whose principal value adjusts with the Consumer Price Index (CPI), shielding investors from the erosion of purchasing power caused by inflation. They are issued and backed by the U.S. Department of the Treasury.
Total Return Swap(TRS)
A total return swap (TRS) is a derivatives contract in which the total return payer transfers all cash flows and capital appreciation or depreciation of a reference asset to the total return receiver in exchange for a periodic floating payment, allowing parties to gain or shed economic exposure to an asset without owning or selling it outright.
Transition Bond(climate transition bond)
A transition bond is a fixed income instrument designed to finance the decarbonization activities of companies in high-emitting industries — such as steel, cement, shipping, oil and gas, and aviation — that cannot yet qualify under standard green bond frameworks but are undertaking credible climate transition strategies.
Treasury Auction Process(Treasury issuance)
The Treasury auction process is the mechanism by which the U.S. Department of the Treasury sells new government debt securities to the public through a competitive bidding system, setting the yield and price at which bills, notes, and bonds are issued into the market.
When-Issued Trading(WI market)
When-issued trading refers to the forward market in newly announced Treasury securities that begins after the Treasury announces an upcoming auction and continues until the securities are actually issued and settle, allowing participants to trade the anticipated securities before they formally exist.
Yield Spread(bond spread)
A yield spread is the difference in yield between two fixed income instruments — most commonly expressed as the gap between a corporate, municipal, or agency bond and a comparable-maturity U.S. Treasury — and serves as a headline measure of the extra return investors demand for accepting risk beyond the risk-free benchmark.
Yield to Call(YTC)
Yield to call (YTC) is the total annualized return an investor would earn if a callable bond is purchased at its current price and redeemed by the issuer on its earliest possible call date at the specified call price, accounting for coupon income, the difference between purchase price and call price, and the shortened holding period.
Yield to Maturity(YTM)
Yield to maturity (YTM) is the total annualized return an investor can expect to earn if a bond is purchased at its current price and held until it matures, assuming all coupon payments are reinvested at the same rate.
Yield to Worst(YTW)
Yield to worst (YTW) is the lowest potential yield an investor can receive on a bond with embedded options — considering all possible call, put, or other redemption dates and prices — and represents the most conservative yield estimate when the issuer acts in a manner most advantageous to itself and least favorable to the bondholder.
Z-Spread(zero-volatility spread)
The Z-Spread (zero-volatility spread) is the constant basis-point spread added to every point on the risk-free spot rate curve that equates a bond's discounted cash flows to its current market price, measuring the bond's total yield premium over the benchmark curve.
Zero-Coupon Bond(zero coupon bond)
A zero-coupon bond is a debt security that pays no periodic interest but is issued at a deep discount to its face value and redeems at par at maturity, with the investor's return being the difference between the purchase price and the face value.