Fixed Income Investment Analysis glossary

Actions the issuer promises to take, maintaining specified financial ratios, using proceeds as stated, providing regular financial reporting.

Taught in Overview of fixed income securities

Repay principal gradually over the bond's life alongside interest, rather than a single lump sum at maturity (the loan amortisation logic of Introduction to Finance and Investments, applied to a tradable bond).

Taught in Overview of fixed income securities

The legal contract between issuer and bondholders setting out the bond's terms, covenants, and the trustee's role in enforcing them on bondholders' collective behalf.

Taught in Overview of fixed income securities

Bonds carrying a right, held by the issuer or the bondholder, to alter the bond's cash flows before scheduled maturity, developed fully in the chapter on bonds with embedded options.

Taught in Overview of fixed income securities

Gives the issuer the right to redeem the bond early, typically exercised when interest rates fall and refinancing at a lower rate becomes attractive (see the chapter on bonds with embedded options).

Taught in Overview of fixed income securities

Gives the bondholder the right to convert the bond into a specified number of the issuer's common shares (see Convertible bonds, in the chapter on embedded options), linking the bond's value to the issuer's equity performance.

Taught in Overview of fixed income securities

The stated annual interest rate paid to bondholders, and how often it is paid (annually, semi-annually), determining the size and timing of periodic cash flows.

Taught in Overview of fixed income securities

The currency the bond's cash flows are paid in, introducing currency risk (see Introduction to Finance and Investments, on asset classes) for an investor whose base currency differs.

Taught in Overview of fixed income securities

Pay a constant coupon throughout the bond's life.

Taught in Overview of fixed income securities

Pay a coupon that resets periodically against a reference rate (see the next chapter) plus a fixed spread, so the coupon amount varies with market rates.

Taught in Overview of fixed income securities

Index their principal or coupon to an inflation measure, protecting the investor's real (inflation-adjusted) return.

Taught in Overview of fixed income securities

The entity borrowing the funds: a government, agency, supranational or corporation (see the next chapter, on market participants), each carrying different credit risk.

Taught in Overview of fixed income securities

Three sets of rules bear on a bond:

• Securities law (see Regulation of Financial Markets) governs disclosure and registration requirements for issuance.
• Tax treatment of interest income (see Public Finance and Taxation) affects investor demand and pricing.
• Regulatory capital rules affect which institutions can hold which bond types.

Taught in Overview of fixed income securities

The date the issuer must repay the principal (par/face value), defining the bond's term.

Taught in Overview of fixed income securities

Actions the issuer promises not to take, incurring additional debt beyond a specified limit, disposing of key assets, paying dividends beyond a specified threshold, protecting bondholders against value being transferred away to shareholders (echoing the shareholder-bondholder version of the agency conflict in Professional Ethics and Governance).

Taught in Overview of fixed income securities

The amount the issuer promises to repay at maturity, and the amount coupon payments are typically calculated against.

Taught in Overview of fixed income securities

Gives the bondholder the right to sell the bond back to the issuer early, typically exercised when interest rates rise and the bond's fixed coupon becomes unattractive (see the chapter on bonds with embedded options).

Taught in Overview of fixed income securities

Requires the issuer to retire a portion of the bond issue periodically before final maturity, reducing the credit risk of a single large repayment at maturity.

Taught in Overview of fixed income securities

Pay no periodic coupon at all, issued at a discount to par and redeemed at par, the entire return coming from that price appreciation.

Taught in Overview of fixed income securities