Bond Glossary

What is an Economic Depression?

What is a Tranche?

What is the Secondary Market?

What is the Cost of Funds Index?

The TED spread, or treasury euro-dollar spread, measures the difference between the 3 month US treasury bill and the 3 month LIBOR.  Remember, LIBOR measures the risk of lending to corporate borrowers while the treasury bill yield is a risk free rate of return.&nbs

What are Euro-dollars?

What is an Inverted Yield Curve?

An inverted yield curve refers to a phenomena in the bond markets where bond securities with shorter maturities actually have higher yields than bonds with longer term maturities with similar credit qualities. Yield curve inversion indicates that long term investors are grim about the future prospects of the economy and thus, are willing to settle for lower long term yields. In the past, this has been a precursor to economic recessions. The reliability of this indicator is still under debate.

Interest Rate Swap - Overview

An interest rate swap is a contractual agreement to exchange periodic interest payments. In most cases one of the rates is fixed and the other is a variable rate whose performance is matched against the prime rate. Interest rate swaps are normally longer in their terms, generally for a period of one year or more.

What is Inflation?

The measure of price increases within a set of goods and services over a period of time is known as inflation.

What is the GDP?

The gross domestic product, or GDP, is the total value of a nations goods and services produced within a preset period of time.  Usually, GDP is measured on a calendar year basis.  More precisely, GDP can be calculated by adding up the following components:  consumption, investment, government spending, and net exports, o

What is the Federal Reserve Bank?

The Federal Reserve acts as the central bank of the United States.  The "Fed" was instantiated by congress and was put in place to stabilize and formalize the banking system within the country.  The primary role of the federal reserve bank is to implement monetary policy to keep a balance between steady economic grow

Overview of the Federal Fund Rate

What are Federal Funds?

All commercial and thrift banks are required to keep a certain percentage of deposits, as cash, at their district Federal Reserve Bank.

WHAT IS A RECESSION?

What is LIBOR?

The London Interbank Offered Rate, or LIBOR, is the European version of the federal funds rate in the United States and represents the interest rate at which London banks charge each other on funds borrowed.

Maturity Date

A bond maturity date refers to the date at which the principal amount of the bond is payable to the bond holder. On the maturity date of the bond, the agreement between the bond holder and the issuer of the bond ceases.