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Bond equivalent yield

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Definition of Bond equivalent yield

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Bond equivalent yield

bond yield calculated on an annual percentage rate method. Differs from annual
effective yield.


Bond-equivalent yield

The annualized yield to maturity computed by doubling the semiannual yield.


Bond Equivalent Yield

bond yield calculated on an annual percentage rate method



Related Terms:

Equivalent bond yield

Annual yield on a short-term, non-interest bearing security calculated so as to be
comparable to yields quoted on coupon securities.


Accrual bond

A bond on which interest accrues, but is not paid to the investor during the time of accrual.
The amount of accrued interest is added to the remaining principal of the bond and is paid at maturity.


Annual percentage yield (APY)

The effective, or true, annual rate of return. The APY is the rate actually
earned or paid in one year, taking into account the affect of compounding. The APY is calculated by taking
one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate
has an APY of 12.68% (1.01^12).



Bearer bond

bonds that are not registered on the books of the issuer. Such bonds are held in physical form by
the owner, who receives interest payments by physically detaching coupons from the bond certificate and
delivering them to the paying agent.


Bond

bonds are debt and are issued for a period of more than one year. The U.S. government, local
governments, water districts, companies and many other types of institutions sell bonds. When an investor
buys bonds, he or she is lending money. The seller of the bond agrees to repay the principal amount of the
loan at a specified time. Interest-bearing bonds pay interest periodically.


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Bond agreement

A contract for privately placed debt.


Bond covenant

A contractual provision in a bond indenture. A positive covenant requires certain actions, and
a negative covenant limits certain actions.


Bond indenture

The contract that sets forth the promises of a corporate bond issuer and the rights of
investors.


Bond indexing

Designing a portfolio so that its performance will match the performance of some bond index.


Bond points

A conventional unit of measure for bond prices set at $10 and equivalent to 1% of the $100 face
value of the bond. A price of 80 means that the bond is selling at 80% of its face, or par value.


Bond value

With respect to convertible bonds, the value the security would have if it were not convertible
apart from the conversion option.


Bond-equivalent basis

The method used for computing the bond-equivalent yield.


BONDPAR

A system that monitors and evaluates the performance of a fixed-income portfolio , as well as the
individual securities held in the portfolio. bondPAR decomposes the return into those elements beyond the
manager's control--such as the interest rate environment and client-imposed duration policy constraints--and
those that the management process contributes to, such as interest rate management, sector/quality allocations,
and individual bond selection.


Brady bonds

bonds issued by emerging countries under a debt reduction plan.


Bond Equivalent Yield Image 3

Bull-bear bond

bond whose principal repayment is linked to the price of another security. The bonds are
issued in two tranches: in the first tranche repayment increases with the price of the other security, and in the
second tranche repayment decreases with the price of the other security.


Bulldog bond

Foreign bond issue made in London.



Capital gains yield

The price change portion of a stock's return.


Cash and equivalents

The value of assets that can be converted into cash immediately, as reported by a
company. Usually includes bank accounts and marketable securities, such as government bonds and Banker's
Acceptances. Cash equivalents on balance sheets include securities (e.g., notes) that mature within 90 days.


Cash equivalent

A short-term security that is sufficiently liquid that it may be considered the financial
equivalent of cash.


Cash-equivalent items

Temporary investments of currently excess cash in short-term, high-quality
investment media such as treasury bills and Banker's Acceptances.


Certainty equivalent

An amount that would be accepted in lieu of a chance at a possible higher, but
uncertain, amount.


Collateral trust bonds

A bond in which the issuer (often a holding company) grants investors a lien on
stocks, notes, bonds, or other financial asset as security. Compare mortgage bond.


Common stock equivalent

A convertible security that is traded like an equity issue because the optioned
common stock is trading high.


Completion bonding

Insurance that a construction contract will be successfully completed.


Conflict between bondholders and stockholders

These two groups may have interests in a corporation that
conflict. Sources of conflict include dividends, distortion of investment, and underinvestment. Protective
covenants work to resolve these conflicts.


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Convenience yield

The extra advantage that firms derive from holding the commodity rather than the future.



Convertible bonds

bonds that can be converted into common stock at the option of the holder.


Convertible eurobond

A eurobond that can be converted into another asset, often through exercise of
attached warrants.


Corporate bonds

Debt obligations issued by corporations.


Corporate taxable equivalent

Rate of return required on a par bond to produce the same after-tax yield to
maturity that the premium or discount bond quoted would.


Coupon equivalent yield

True interest cost expressed on the basis of a 365-day year.


Current yield

For bonds or notes, the coupon rate divided by the market price of the bond.


Cushion bonds

High-coupon bonds that sell at only at a moderate premium because they are callable at a
price below that at which a comparable non-callable bond would sell. Cushion bonds offer considerable
downside protection in a falling market.


Debenture bond

An unsecured bond whose holder has the claim of a general creditor on all assets of the
issuer not pledged specifically to secure other debt. Compare subordinated debenture bond, and collateral
trust bonds.


Deep-discount bond

A bond issued with a very low coupon or no coupon and selling at a price far below par
value. When the bond has no coupon, it's called a zero coupon bond.


Discount bond

Debt sold for less than its principal value. If a discount bond pays no interest, it is called a
zero coupon bond.


Dividend yield (Funds)

Indicated yield represents return on a share of a mutual fund held over the past 12
months. Assumes fund was purchased 1 year ago. Reflects effect of sales charges (at current rates), but not
redemption charges.


Dividend yield (Stocks)

Indicated yield represents annual dividends divided by current stock price.


Dollar bonds

Municipal revenue bonds for which quotes are given in dollar prices. Not to be confused with
"U.S. Dollar" bonds, a common term of reference in the Eurobond market.


Dollar price of a bond

Percentage of face value at which a bond is quoted.


Earnings yield

The ratio of earnings per share after allowing for tax and interest payments on fixed interest
debt, to the current share price. The inverse of the price/earnings ratio. It's the Total Twelve Months earnings
divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is
shown in percentage.


Effective annual yield

Annualized interest rate on a security computed using compound interest techniques.


Equivalent annual annuity

The equivalent amount per year for some number of years that has a present
value equal to a given amount.


Equivalent annual benefit

The equivalent annual annuity for the net present value of an investment project.


Equivalent annual cash flow

Annuity with the same net present value as the company's proposed investment.


Equivalent annual cost

The equivalent cost per year of owning an asset over its entire life.


Equivalent loan

Given the after-tax stream associated with a lease, the maximum amount of conventional
debt that the same period-by-period after-tax debt service stream is capable of supporting.


Equivalent taxable yield

The yield that must be offered on a taxable bond issue to give the same after-tax
yield as a tax-exempt issue.


Eurobond

A bond that is (1) underwritten by an international syndicate, (2) offered at issuance
simultaneously to investors in a number of countries, and (3) issued outside the jurisdiction of any single
country.


Eurodollar bonds

Eurobonds denominated in U.S.dollars.


Euroyen bonds

Eurobonds denominated in Japanese yen.


Extendable bond

bond whose maturity can be extended at the option of the lender or issuer.


Fixed-income equivalent

Also called a busted convertible, a convertible security that is trading like a straight
security because the optioned common stock is trading low.


Flattening of the yield curve

A change in the yield curve where the spread between the yield on a long-term
and short-term Treasury has decreased. Compare steepening of the yield curve and butterfly shift.


Flower bond

Government bonds that are acceptable at par in payment of federal estate taxes when owned by
the decedent at the time of death.


Foreign bond

A bond issued on the domestic capital market of anther company.


Foreign bond market

That portion of the domestic bond market that represents issues floated by foreign
companies to governments.


Full coupon bond

A bond with a coupon equal to the going market rate, thereby, the bond is selling at par.


General obligation bonds

Municipal securities secured by the issuer's pledge of its full faith, credit, and
taxing power.


Global bonds

bonds that are designed so as to qualify for immediate trading in any domestic capital market
and in the Euromarket.


Government bond

See: Government securities.


High-coupon bond refunding

Refunding of a high-coupon bond with a new, lower coupon bond.


High-yield bond

See:junk bond.


Income bond

A bond on which the payment of interest is contingent on sufficient earnings. These bonds are
commonly used during the reorganization of a failed or failing business.


Indexed bond

bond whose payments are linked to an index, e.g. the consumer price index.


Indicated yield

The yield, based on the most recent quarterly rate times four. To determine the yield, divide
the annual dividend by the price of the stock. The resulting number is represented as a percentage. See:
dividend yield.


Industrial revenue bond (IRB)

bond issued by local government agencies on behalf of corporations.


Insured bond

A municipal bond backed both by the credit of the municipal issuer and by commercial
insurance policies.


International bonds

A collective term that refers to global bonds, Eurobonds, and foreign bonds.


Investment grade bonds

A bond that is assigned a rating in the top four categories by commercial credit
rating companies. For example, S&P classifies investment grade bonds as BBB or higher, and Moodys'
classifies investment grade bonds as Ba or higher. Related: High-yield bond.


Junk bond

A bond with a speculative credit rating of BB (S&P) or Ba (Moody's) or lower is a junk or high
yield bond. Such bonds offer investors higher yields than bonds of financially sound companies. Two
agencies, Standard & Poors and Moody's investor Services, provide the rating systems for companies' credit.


Level-coupon bond

bond with a stream of coupon payments that are the same throughout the life of the bond.


Limited-tax general obligation bond

A general obligation bond that is limited as to revenue sources.


Liquid yield option note (LYON)

Zero-coupon, callable, putable, convertible bond invented by Merrill


Long bonds

bonds with a long current maturity. The "long bond" is the 30-year U.S. government bond.


Low-coupon bond refunding

Refunding of a low coupon bond with a new, higher coupon bond.


Liquid yield option note (LYON)

Zero-coupon, callable, putable, convertible bond invented by Merrill Lynch & Co.


Long bonds

bonds with a long current maturity. The "long bond" is the 30-year U.S. government bond.


Mismatch bond

Floating rate note whose interest rate is reset at more frequent intervals than the rollover
period (e.g. a note whose payments are set quarterly on the basis of the one-year interest rate).


Mortgage bond

A bond in which the issuer has granted the bondholders a lien against the pledged assets.
Collateral trust bonds


Municipal bond

State or local governments offer muni bonds or municipals, as they are called, to pay for
special projects such as highways or sewers. The interest that investors receive is exempt from some income taxes.


Non-parallel shift in the yield curve

A shift in the yield curve in which yields do not change by the same
number of basis points for every maturity. Related: Parallel shift in the yield curve.


Parallel shift in the yield curve

A shift in the yield curve in which the change in the yield on all maturities is
the same number of basis points. In other words, if the 3 month T-bill increases 100 basis points (one
percent), then the 6 month, 1 year, 5 year, 10 year, 20 year, and 30 year rates increase by 100 basis points as
well.
Related: Non-parallel shift in the yield curve.


Positive covenant (of a bond)

A bond covenant that specifies certain actions the firm must take. Also called
and affirmative covenant.


Premium bond

A bond that is selling for more than its par value.


Prerefunded bond

Refunded bond.


Pure-discount bond

A bond that will make only one payment of principal and interest. Also called a zerocoupon
bond or a single-payment bond.


Pure yield pickup swap

Moving to higher yield bonds.


Put bond

A bond that the holder may choose either to exchange for par value at some date or to extend for a
given number of years.


Realized compound yield

yield assuming that coupon payments are invested at the going market interest
rate at the time of their receipt and rolled over until the bond matures.


Refunded bond

Also called a prerefunded bond, one that originally may have been issued as a general
obligation or revenue bond but that is now secured by an "escrow fund" consisting entirely of direct U.S.
government obligations that are sufficient for paying the bondholders.


Registered bond

A bond whose issuer records ownership and interest payments. Differs from a bearer bond
which is traded without record of ownership and whose possession is the only evidence of ownership.


Relative yield spread

The ratio of the yield spread to the yield level.


Reoffering yield

In a purchase and sale, the yield to maturity at which the underwriter offers to sell the bonds
to investors.


Required yield

Generally referring to bonds, the yield required by the marketplace to match available returns
for financial instruments with comparable risk.


Revenue bond

A bond issued by a municipality to finance either a project or an enterprise where the issuer
pledges to the bondholders the revenues generated by the operating projects financed, for instance, hospital
revenue bonds and sewer revenue bonds.


Riding the yield curve

Buying long-term bonds in anticipation of capital gains as yields fall with the
declining maturity of the bonds.



 

 

 

 

 

 

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