FIXED-INCOME ANALYTICS
Bond Terminology
The following glossary defines municipal-bond, fixed-income, and interest-rate modeling terms used throughout this application. Select a term to jump directly to its definition.
- Accrued Interest
- Basis Point (bp)
- Bond Price
- Business-Day Convention
- Call Date
- Callable Bond
- Callable Price
- Clean Price
- Convexity
- Coupon Rate
- Day-Count Convention
- Dirty Price
- Duration
- Embedded Call Option Value
- Implied Tax Rate
- Interest-Rate Volatility
- Issue Price
- Maturity Date
- Municipal Spot-Rate Curve
- Municipal Spread
- Non-Callable Bond
- Non-Callable Price
- Option-Adjusted Spread (OAS)
- Par Value
- Present Value
- Settlement Date
- Spot Rate
- Treasury Spot-Rate Curve
- Yield Curve
- Yield-to-Call (YTC)
- Yield-to-Maturity (YTM)
Accrued Interest
Interest earned by the bondholder since the most recent coupon payment date but not yet paid. A buyer generally pays the seller the clean price plus accrued interest, producing the dirty or full price.
Basis Point (bp)
One one-hundredth of one percentage point. A change from 3.00% to 3.25% is an increase of 25 basis points.
Bond Price
The present value of the bond’s expected future cash flows. Prices are commonly quoted per $100 of par value, so a price of 105 means $105 for each $100 of principal.
Business-Day Convention
A rule specifying how a payment or settlement date is adjusted when it falls on a weekend or holiday. QuantLib applies the selected calendar and convention when building payment schedules.
Call Date
The first date, or one of a series of dates, on which the issuer may redeem a callable bond before maturity under the terms of the bond issue.
Callable Bond
A bond that gives the issuer the right, but not the obligation, to redeem the bond before its stated maturity date, usually at par after a specified call date.
Callable Price
The estimated value of a bond after recognizing the issuer’s right to redeem it early. The application calculates this value with an interest-rate model across many possible future rate paths.
Clean Price
The quoted bond price excluding accrued interest. Market prices are commonly stated as clean prices even though settlement generally occurs at the dirty price.
Convexity
A measure of how a bond’s interest-rate sensitivity changes as yields change. It supplements duration and improves estimates of price changes for larger yield movements.
Coupon Rate
The annual interest rate stated on the bond, expressed as a percentage of par value. The coupon rate determines the scheduled coupon payments.
Day-Count Convention
The market rule used to determine the fraction of a year between two dates for calculating accrued interest and other cash-flow amounts.
Dirty Price
The total settlement price of a bond, equal to the clean price plus accrued interest.
Duration
A measure of a bond’s sensitivity to changes in interest rates. Modified duration approximates the percentage price change for a small change in yield.
Embedded Call Option Value
The value of the issuer’s right to redeem the bond before maturity. In this application it equals the non-callable price minus the callable price.
Implied Tax Rate
A market-based adjustment used to convert taxable Treasury rates into lower tax-exempt municipal rates. It represents the market value of the municipal tax advantage rather than the actual tax rate of a specific investor.
Interest-Rate Volatility
An assumption describing how much interest rates may fluctuate over time. Higher volatility generally increases the value of the issuer’s call option.
Issue Price
The price at which a bond is initially sold to investors. It may be at par, below par, or above par.
Maturity Date
The date on which the bond’s remaining principal is scheduled to be repaid if the bond has not previously been called or otherwise retired.
Municipal Spot-Rate Curve
A set of maturity-specific discount rates used to value municipal-bond cash flows. This application constructs the curve from Treasury spot rates, implied tax rates, and municipal spreads.
Municipal Spread
An adjustment added to a tax-adjusted Treasury rate to reflect credit quality, perceived market liquidity through supply and demand, overall market conditions, state-specific tax treatment, and other municipal-market factors.
Non-Callable Bond
A bond that cannot be redeemed by the issuer before its stated maturity date, except under unusual provisions specified in the legal documents.
Non-Callable Price
The value a bond would have if no call provision existed. It is calculated by discounting all promised coupon and principal payments using the municipal spot-rate curve.
Option-Adjusted Spread (OAS)
A spread measure that adjusts for the estimated value of an embedded option. It is intended to make bonds with different call provisions more directly comparable.
Par Value
The principal amount repaid at maturity or, commonly, upon exercise of a par call. Bond prices in this application are generally expressed per 100 of par value.
Present Value
The current value of a future cash flow after discounting it at an appropriate interest rate for the time until payment.
Settlement Date
The date on which ownership and payment for a bond transaction are completed. It determines accrued interest and the cash flows included in the valuation.
Spot Rate
The interest rate used today to discount a single cash flow occurring at a specific future date. A spot-rate curve contains one such rate for each maturity.
Treasury Spot-Rate Curve
A term structure of maturity-specific discount rates derived from U.S. Treasury securities. It serves as the starting point for constructing municipal discount rates in this application.
Yield Curve
A graph or set of interest rates for securities or cash flows with different maturities. Its shape may be upward sloping, flat, inverted, or humped.
Yield-to-Call (YTC)
The single discount rate that equates a bond’s market price with its coupon payments and call price, assuming the bond is redeemed on a specified call date.
Yield-to-Maturity (YTM)
The single discount rate that equates a bond’s market price with all promised coupon and principal payments, assuming the bond remains outstanding until maturity.