Bond Glossary

Monetary Indicators - Definition

Par Value

Par value refers to the price of a bond at its maturity.  Bonds are traded or denominated in units of $1,000; however, they are quoted on the open market by dividing the base unit by 10.  Therefore, a bond price of 100 refers to par.  Bonds are commo

What is a Discount Rate?

The term discount rate can have one of two meanings.  The discount rate can be used to describe the interest rate that an eligible depository institution can borrow funds from the federal reserve.  The federal reserve sets two interest rates; the discount rate which we

What is a Credit Rating?

A credit rating defines the financial strength of a borrower and helps the investor determine the likelihood that the bond issuer will pay coupon payments in a timely fashion and more importantly the initial investment at maturity.  There are two major credit rating agencies; they ar

What is the CPI?

The consumer price index, aka.

What is a Basis Point?

The term Basis Point (bp) was created to account for fractional changes in bond yields. Since large institutional bond traders can make or lose hundreds of thousands of dollars on fractional moves in interest rates, they divide each percentage point by 100 to gain a more granular level of analysis.

What is Accrued Interest?

Accrued Interest is the amount of interest that a bond has earned since the last coupon payment.  If a bond holder sells a bond between coupon payments, they are entitled to receive the accrued interest from the last coupon payment till the date they sell the bond.  When a