Reading 53: Fixed Income Markets: Issuance, Trading, And Funding

Front 1

GDP

Back 1

The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

=C+G+I+NX

C" is equal to all private consumption, or consumer spending, in a nation's economy"G" is the sum of government spending"I" is the sum of all the country's businesses spending on capital"NX" is the nation's total net exports, calculated as total exports minus total imports. (NX = Exports - Imports)

Front 2

auction

Back 2

bond issuing mechanism that involves bidding

Front 3

t-bills vs. capital market securities (e.g. t-notes/t-bonds corporate bonds etc)

Back 3

t-bills are pure discount bonds and capital market securities are usually coupon bearing bond which pay interest periodically until maturity

Front 4

bilateral loan

Back 4

loan from a single lender to a single borrower(corporate)

Front 5

syndicated loan

Back 5

loan from a group of lenders to a single borrower

in underwriting this is when more than one investment bank underwrites and offering

Front 6

commercial paper

Back 6

a short term unsecured promissory note issued in the public market or via a private placement that represents a debt obligation of the issuer

source of fudning for working capital and seasonal demands for cash

also a source of bridge financing

can range from overnight to one year but usually 3 months

Front 7

bridge financing

Back 7

interim financing that provides funds until permanent financing can be arranged

Front 8

medium term note MTN

Back 8

a note issued by a corporation through a dealer that is continuously available to investors, there are no specific issue dates

Front 9

floating rate notes

Back 9

notes whose interest rate moves inversely with a benchmark of bonds (LIBOR) interest rates

used to lessen interest rate risk

when interest rates rise so so the interest rates of these bonds

Front 10

payment in kind

Back 10

1. The use of a good or service as payment instead of cash.

2. A financial instrument that pays interest or dividends to investors of bonds, notes or preferred stock with additional debt or equity instead of cash. Payment-in-kind securities are attractive to companies who would prefer not to make cash outlays. They are often used in leveraged buyouts.

Front 11

inflation linked coupons

Back 11

payments adjust to consumer price index to protect from inflation thus reducing real return on a bond

Front 12

credit linked coupons

Back 12

coupon payments adjust in line with credit quality of the issuer

for example if the issuer's credit quality as observed by Moody's for instance is reduced, the coupon rate will be increased to compensate for increased risk of default

Front 13

serial maturity saturcture

Back 13

maturity dates a spread throughout the bonds life

bondholders know when each bond will mature

corporate bonds

Front 14

term maturity structure

Back 14

notional principal is paid off in a lump sum at maturity

corporate bonds

Front 15

sinking fund

Back 15

a way to reduce credit risk by making the issuer set aside funds over time to retire the bond issue at maturity

bonds to be repurchased are chosen at random by issuer or purchased back by trustee in open market (for corporates)

Front 16

covered bonds

Back 16

debt obligation that is secured by a segregated pool of assets

Front 17

contingency provisions on bonds

Back 17

calls, puts and conversions

Front 18

retail deposits

Back 18

primary source of funding for deposit taking banks

include demand deposits "checking accounts", savings accounts and money market accounts

Front 19

money market accounts

Back 19

intermediate between demand deposit and savings accounts

offer money market rates of return and can be accessed with little or no notice

Front 20

short term wholesale funds

Back 20

include central bank funds, interbank funds, and certificates of deposit

Front 21

central bank funds

Back 21

required for depositories as a reserve balance with the national central bank (federal reserve in the US) in order to make sure they have money when people want to make withdrawals

Front 22

interbank funds

Back 22

market of loans and deposits between banks

over night to one year

Front 23

Interbank offered rates

Back 23

sets of rates that reflect the rates at which banks believe they could borrow unsecured funds from other banks in the interbank market for different currencies and different maturities

used as reference rates for FRN, mortgages, interest rate and currency swaps, and many other contracts

Front 24

certificate of deposit

Back 24

an instrument that represents a specified amount of funds on deposit for a specified maturity and interest rate
can be sold on the open market before the maturity date

Front 25

non-negotiable CD

Back 25

deposit plus interest are paid to initial depositor at maturity

Front 26

negotiable CD

Back 26

allows any depositor to sell the CD on the open market up to maturity

Front 27

repurchase agreement

Back 27

sale of a security with a simultaneous agreement by the seller to buy the same security back from the purchaser at an agreed upon price and date

any payments made y the security belong to the original holder

repurchase agreement is the selling side

sell to you for cash now and buy it back later with interest payment

Front 28

reverse repurchase agreement

Back 28

often used to cover short positions

depends on one's point of view (lender or borrower)

reverse is the buyer side

buy the security now and you buy it back from me later with interest

Front 29

wholesale funds

Back 29

Funds borrowed by corporations, in high amounts, through financial institutions. Wholesale money is a way for large institutions to obtain capital without having to issue shares or bonds.

include central bank funds, interbank funds, and negotiable certificates of deposit

Front 30

LIBOR

Back 30

London Interbank Offered Rate

Front 31

corporate bonds settle on the trade date + how many days?

Back 31

3

Front 32

central bank funds

Back 32

funds that a depository bank must place on reserve with the national bank of the country in order to ensure liquidity for those who want to take out funds from the bank

Front 33

for a deposit taking bank, holding reserves with the national central bank is:

A) a requirement

B) an opportunity cost

C) an opportunity to receive interest on excess funds

Back 33

B

Front 34

a large denomination negotiable certificate of deposit is most likely:

A) Traded on the open market

B) is purchased by retail investors

C) has a penalty for early withdrawal of funds

Back 34

A

Front 35

underwriting process includes 6 phases:

Back 35

1) determination of funding needs

2) selection of underwriter

3) structuring and announcement of the bond offering

4) pricing

5) issuing

6) closing

Front 36

most bonds are traded in what kind of market

Back 36

OTC