Fixed Income Definitions

Positive Yield Curve

Refers to the situation where long term bonds have higher yields than short term bonds. This is the most common condition of the yield curve, where investors demand higher interest rates for taking on a longer term investment. It is the opposite of an Inverted Yield Curve. See also: Yield Curve

Positive Convexity

Positive Convexity describes the situation where the bond price appreciation for a large downward change in interest rates will be greater the price depreciation for the same upward change in interest rates.

Convertible Bond

A convertible bond is a debt instrument issued by a company that can be converted to stock of the underlying company. While the company typically pays low interest on the bond, it can be converted to common stock, usually at a premium to the current stock market valuation.

Pickup Bond

A bond with a high coupon rate close to it’s callable date. A fall in interest rates would be likely to cause an early redemption of the bond where the buyer can expect a premium.

PIBOR

Acronym for Paris Interbank Offer Rate. See also: LIBOR

Commodity-Linked Bond

A bond in which payment to the investor is dependent to a certain extent on the price level of a commodity, such as crude oil, gold, or silver, at maturity.

Zero-Coupon Convertible Security

A Zero-Coupon Convertible Security is a Zero-Coupon Bond that is convertible into the common stock of the issuing company when the stock reaches a certain predetermined price. Also refers to the Zero-Coupon Bond, usually a Municipal Bond that is convertible into an interest bearing bond at a certain

Zero-coupon convertible security

A zero-coupon bond which can be converted into the common stock of the issuing company at a certain price, using a put option inherent in the security.

Zero-coupon bond

A bond which pays no coupon over the life of the contract. It is sold at a deep discount to its face value, and matures at its face value. Both the principal and the interest are paid at the maturity date. See also: http://www.sec.gov/answers/zero.htm

Zero Coupon

Refers to a debt instrument that does not make coupon payments, but, rather, is issued at a discount to par and redeemed at par at maturity.