Fixed Income Glossary
Accrual Day Count
The convention used to determine the number of days in each coupon payment cycle, which is then used to calculate accrued interest on the security.
The amount of interest that has accumulated since the last interest payment date. The seller of a bond is entitled to accrued interest, which is paid by the buyer and added to the price of a bond transaction. Accrued interest is calculated up to (but not including) the settlement date.
Field that indicates whether the order is a "buy" or "sell."
Allows you to search for more securities.
The process of issuing new bonds to repay an outstanding bond prior to its first call date. Usually, the proceeds of a lower-interest bond (the refunding bond) are used to retire a callable, higher-interest bond (the refunded bond) during periods of declining interest rates. Refunded bonds can be refunded to either the maturity date or a call date. Advance refunding is common with municipal bonds.
To accomplish this, issuers:
- Sell a new bond with lower interest and possibly longer maturity than the original bond.
- Invest the proceeds in bonds that mature at either the maturity or call date of the refunded bonds, essentially holding the funds in escrow.
Note: The newly purchased bonds are usually lower-risk bonds such as U.S. Treasuries, agencies, or State and Local Government Series (SLGS or SLUGS) securities. Once the newly purchased bonds mature, issuers use the principal to retire the outstanding refunded bonds. (See pre-refunding.)
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Ad Valorem Tax Status
Indicates whether a municipal bond issue is supported by a limited or unlimited ad valorem tax pledge from the issuing entity. If the bond is supported by an ad valorem tax pledge, principal and interest on the issue are generally paid to holders from the stated tax revenue source.
A security issued by either a government-sponsored enterprise (GSE), such as the Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal Home Loan Bank (FHLB), and Federal Farm Credit System (FFCS), or a government-owned corporation such as the Tennessee Valley Authority (TVA). Although agency bonds are not guaranteed by the full faith and credit of the U.S. government (except those issued by GNMA), they do involve some level of federal sponsorship. Most agencies sell bonds to raise capital, which is loaned to groups like farmers and homeowners.
Alternative Minimum Tax (AMT)
Created by Congress in 1969, the AMT was designed to ensure that all taxpayers pay at least some tax. The rules governing AMT identify a minimum amount of tax that an individual should pay, based on his or her income. If the individual, following normal tax rules, is not required to pay at least this amount, then he or she will need to pay the AMT.
Alternative Trading System (ATS)
An electronic trading system that is SEC registered. It matches buyers and sellers for trades, making it useful for intermarket trading and large trades that might otherwise trigger price changes on a traditional exchange. In addition, trading costs may be lower than those on a formal securities exchange. Examples include an electronic communication network (ECN), a crossing network, or a call market.
Annual Percentage Yield (APY)
Unlike the annualized rate, the APY takes into account the effect of compound interest. It is a standardized way to quote the annual rate of return for certificates of deposit (CDs).
The formula for APY is: APY = (1 + Periodic Rate)n – 1
n = number of periods
A rate of return that's calculated by taking the return for a period of time (less than one year) and extrapolating it to a full year's rate.
The price at which a seller is willing to sell a security. Also known as the offer price.
Asset-Backed Security (ABS)
A security with a specific asset pledged as collateral should the issuer be unable to make interest or principal payments when due.
Assumed Yield to Average Life
The average annual return on a bond, based on the assumed prepayments of mortgages held within a pool of mortgage-backed securities.
For mortgage-backed securities, the weighted average number of years to get back all principal on a security. For example, an investment that pays back 50% of the principal after one year and the other 50% of its principal in two years has an average life of 1½ years. (This estimate can vary and is based on prepayment assumptions that may or may not be met.)
Indicates that a municipal bond has been designated a "qualified tax-exempt obligation," allowing banks to benefit from tax deductions on the cost to carry the bonds.
A bond portfolio strategy in which you buy one group of bonds with short-term maturities and another group with longer-term maturities. The shorter bonds provide liquidity and less price volatility, while the longer bonds provide additional yield. By combining the two, you can achieve an intermediate duration with higher liquidity than a bond ladder.
One basis point is equal to 0.01%. Yield differences between fixed income securities are often stated in basis points (e.g., the difference between a bond yielding 4.85% and one yielding 4.96% is 11 basis points).
Also known as the selling price, this is the price that a buyer is willing to pay for a security.
A debt security maturing in less than one year.
Blue Sky Terms and Conditions
Refers to the set of state laws governing the registration and sale of securities. The specific provisions of these laws vary among states (and may include certain exemptions), but generally these laws require state registration of all securities sold within the state, as well as state registration of the brokers and brokerage firms that sell them. Each state's blue sky law is administered and enforced by its own regulatory agency. Due to state-specific securities laws, not all securities are available to legal residents of all 50 states and U.S. territories.
A debt security that obligates the issuer to pay the bondholder specific amounts of interest on specific dates, and usually to repay the principal value at the maturity date. The term is sometimes used to differentiate a debt security maturing in over 10 years from those with shorter maturities.
Bond Anticipatory Note (BAN)
A bond issue used as short-term financing by a government or corporation that is sold in advance of a larger upcoming bond issue. Part of the proceeds from the larger issue are used to pay off the BAN.
Field that contains details of the specific bond issue.
A bond insurance company that guarantees the timely payment of principal and interest on municipal and certain other types of bonds if the issuer defaults.
Bond Mutual Fund (or Bond Fund)
A mutual fund that holds fixed income securities such as Treasury bonds, municipal bonds, or corporate bonds. With small investment minimums, bond funds offer low-cost access to professionally managed fixed income portfolios.
Bond Mutual Fund—Nontaxable
A bond mutual fund that invests primarily in tax-free securities like municipal bonds.
Bond Mutual Fund—Taxable
A bond mutual fund that invests in taxable securities like Treasuries or corporate bonds.
The sale of one bond and purchase of another to get a bond with a better credit rating, earn a higher yield, make a maturity adjustment, or realize a gain.
See Schwab BondSource®.
Field that shows the symbol of a bond if it trades on an exchange.
Brokered Certificate of Deposit
A certificate of deposit (CD) issued by a bank but available for sale by a broker such as Schwab. Brokered CDs are FDIC-insured and generally have a survivor's option. Unlike CDs held at the issuing bank, brokered CDs do not allow reinvestment of interest payments and can be sold in the secondary market. They have a CUSIP number and can be transferred between financial institutions.
Build America Bond (BAB)
The American Recovery and Reinvestment Act of 2009 created this new form of security with government-subsidized interest payments on certain municipal bonds. BABs have credit ratings, maturities, and interest payment structures similar to those of traditional municipal bonds; they are underwritten the same way and can trade in the secondary market. In addition, they can be general obligation (GO) or revenue bonds and are obligations of the issuer, not the federal government. Like traditional municipal bonds, BABs may be exempt from state tax in the state where they're issued, but they are subject to federal taxes.
A noncallable bond (or portfolio of bonds) with one fixed maturity date.
Buying Treasuries at Auction (Non-Competitive)
The process for buying U.S. government securities from the Treasury. If you make a noncompetitive bid, you agree to accept the securities at the average bid price, which is determined at the auction.
Callable Bond or CD
A bond or certificate of deposit (CD) that can be redeemed before maturity at the issuer's discretion on specified dates at specified prices (see call schedule). Callable bonds are more likely to be called when interest rates fall and the issuer can issue new bonds or CDs with a lower interest rate.
Field that indicates the method of calling a bond (i.e., full, partial, or pro-rata). With a full call, the entire issue is redeemed by the issuer. A partial call means the issuer redeems less than the full amount, as determined through a lottery or other method. A pro-rata call is a type of partial call in which the issuer redeems the same percentage of bonds from all holders to meet the required amount of the call.
Call Notification Days
The minimum number of days before the next call date when the issuer of a security has to notify the holders of that security that they intend to redeem all or part of the issue.
Call Premium (or Premium Call Price)
The price above par (or face) value that an issuer must pay to redeem (or call) a security before its maturity date.
The price at which an issuer can redeem (or call) bonds early, at specified dates prior to the maturity date. This price may be at par value, discount to par, or premium to par. It can vary from call date to call date according to the call schedule.
A security is said to have "call protection" when it cannot be redeemed before the maturity date by the issuer. This protects holders from unplanned reinvestment when rates are low.
The risk to bondholders that a call option will be exercised by the issuer at an unfavorable time for the holder, such as when interest rates are low; if you are a bondholder whose security is called, you can lose potential interest income.
The schedule of dates on which a security may be called and the list of prices that apply to each date.
Field that indicates the call/sink/put features, including the schedule, price, and type. See call method, sinking fund, and putable security.
Field that indicates whether a bond is callable or noncallable and, if callable, whether the call is discrete or continuous.
Certificate of Deposit (CD)
A time-based bank deposit that pays interest, is insured by the FDIC, and returns the initial deposit on a specified maturity date.
Closed-End Bond Fund
A bond mutual fund that issues a set number of shares through an IPO. These shares trade on secondary market exchanges, similar to regular stock shares. Closed-end funds can be actively or passively managed.
Short-term debt obligations with maturities ranging from 2 to 270 days that are issued by banks, corporations, and other institutions. Commercial paper is a discount instrument, sold at a price below par value. At maturity, the difference between the purchase value and par represents the interest the investor receives. In general, commercial paper must be held to maturity because there is no secondary market.
A method of issuing municipal bonds where the issuer structures the deal itself (usually with professional help) and underwriters compete to "win" the deal through submission of proposals that include the purchase and offer price. Compared to negotiated deals, competitive deals have less certainty about which firms will obtain bonds.
A security that can be redeemed by the issuer on any date, from the time that the bond is first callable until its maturity date, generally with two weeks' notice.
The right of the holder to exchange one type of security for another—for example, the ability to convert a bond or preferred stock to the issuer's common stock.
Convertible Security or Bond
A fixed income security that has a conversion feature.
A calculation used in conjunction with duration to estimate how much a bond price will change when interest rates change. Convexity makes the duration approximation more accurate, especially for callable bonds and mortgage-backed securities. See duration.
A debt obligation issued by a corporation to fund expansion and other activities.
The amount of annual interest the issuer promises to pay the bondholder each year, usually expressed as a percentage of par (or face) value of the security. For example, a 5% coupon for a $1,000 bond would pay the bondholder $50 annually. The coupon payment can be made at maturity, annually, semiannually, quarterly, or monthly.
The payment schedule for coupons. The most common frequencies are at maturity, annually, semiannually, quarterly, and monthly.
Coupon Rate Percentage
Shows the coupon rate for each bond.
Consumer Price Index—Urban (CPI-U)
An index published monthly by the Bureau of Labor Statistics at the U.S. Department of Labor, CPI-U measures the average price for a basket of consumer goods and services purchased in a U.S. city. The basket includes housing, food and beverages, apparel, transportation (e.g., new vehicles, airline fares, gasoline, motor vehicle insurance), medical care, recreation, education and communication, and other goods and services (such as tobacco and smoking products, haircuts, and funeral expenses). Urban consumers represent 87% of the total U.S. population. It is widely used as a cost-of-living benchmark and to identify periods of inflation or deflation.
A feature added to a fixed income security that's designed to increase its credit rating. Credit enhancements include secondary insurance and a bank letter of credit.
An assessment of an issuer's ability to repay its debt, based on its history of borrowing, repayment, and other factors. Credit ratings are generally provided by an independent agency such as Standard & Poor's or Moody's Investors Service and are available through Schwab BondSource® on the Search Results and Order Verification pages. Ratings reflect a current assessment of the issuer's creditworthiness and do not guarantee future performance.
The risk that a security will default or that its credit rating will be downgraded, resulting in a decrease in value for the security. The measurement of credit risk usually considers the risk of default, credit downgrade, or change in credit spread.
The difference in yield between two securities or groups of securities due to credit rating.
A list maintained by the rating agencies that alerts investors of possible credit rating upgrades or downgrades. On Schwab.com, a green up arrow means that a bond has a positive outlook and could be upgraded. A red down arrow means that a bond has a negative outlook and could be downgraded. The exclamation mark ("!") means a bond is on credit watch and there is no indication whether the outlook is positive or negative.
If a company fails to make a dividend or interest distribution to preferred shareholders, the unpaid payments accrue and must be paid to preferred shareholders before any other distributions can be made to common shareholders.
Cumulative Maximum Deferral Payment
Field that indicates the maximum time period an issuer can defer interest or dividend payments owed to shareholders. For most preferred stock, this is generally 60 months (5 years). After this period, unpaid payments would cease to accrue for holders.
Current Face Value
The remaining principal on a mortgage-backed security. Current face value is computed by multiplying the original face value of the security by the pool factor (see factor).
Current Yield Percentage
The amount of annual interest (in dollars) divided by the current price of the security.
CUSIP (Committee on Uniform Securities Identification Procedures)
Most securities are issued a unique nine-character identifier, which is commonly called a CUSIP number.
The date when interest begins to accrue on a newly issued fixed income security.
Generic term for a bond (or loan) issued by the U.S. government, a corporation, or a municipality.
The amount of cash required to pay principal and interest on debt when due.
An issuer's failure to promptly pay interest or principal when due. Default can also be triggered by violations of loan covenants in the bond indenture or security contract.
The depositing of funds to make future payment of principal and interest generally for the purpose of making the previously pledged revenues available for other purposes without effecting a legal defeasance. If for some reason the funds deposited in an economic or financial defeasance prove insufficient to make future payment of the outstanding debt, the issuer continues to be legally obligated to make payment on such debt from the pledged revenues. Only applies to pre-refunding.
The termination of the rights and interests of the bondholders and of their lien on the pledged revenues or other security in accordance with the terms of the bond contract for an issue of securities. Usually occurs in connection with the refunding of an outstanding issue after provision has been made for future payment of all obligations under the outstanding bonds through funds provided by the issuance of a new series of bonds. Only applies to pre-refunding.
Field that indicates whether interest payments can be deferred.
The time between the beginning of the interest accrual period and the first payment to mortgage-backed security holders. Delay days account for the timing of payment collections from the individual mortgages and the processing time required to pass payments through to security holders.
Delayed Settlement Date
Extension of the normal settlement date, when a buyer must pay for securities delivered by the seller. Common with new-issue municipal bonds. See settlement date.
Field that contains details of the specific bond issue.
Term used to describe the price of a fixed income security whose market price is below the par (or face) value price. This occurs when the yield to maturity is above the coupon rate of the security. When the market price is well below par, a security is said to be trading at a deep discount.
The interest rate that the Federal Reserve charges member banks for loans through the discount window. Or the interest rate used to determine the present value (or price) of a security based on anticipated future cash flows, such as interest and principal payments. The discount rate used for a bond is its yield to maturity.
For callable bonds, when the issuer has the right to repurchase bonds only on interest payment dates or designated dates of the call schedule, from the time that the bond is first callable until its maturity date.
For an individual bond or bond portfolio, a calculation used to estimate how a change in the interest rate will affect the bond price. The calculation usually assumes a 100 basis point change in the interest rate. For example, if a bond has a duration of 8, it's expected to go up or down 8% in price if the yield to maturity for the bond moves 1%.
Auction system in which a seller gradually lowers the price of an item until it meets a bid and is sold. U.S. Treasury bills are sold in this manner.
Education & Tools
Additional fixed income resources, including research, investing advice, and guidance.
Electronic Communication Network (ECN)
An alternative trading system that links buyers and sellers of securities and allows them to post bids and offers and execute trades.
A security with interest payments that vary based on the performance of a specific equity or basket of equities rather than paying a fixed rate.
A bond whose principal and interest are paid from money or securities that are placed in an escrow account by the issuer. See advance refunding and pre-refunded bond.
Estimated transaction cost, which includes any commissions, markups or markdowns, and service costs.
Estimated Total Cost
Estimated cost of a purchase, which includes the price of a security, accrued interest, and any applicable markups, markdowns, or commissions.
For mortgage-backed securities, the risk that principal is paid back more slowly than anticipated, resulting in a longer average life and lower return on the investment.
Extraordinary Redemption (aka Catastrophic Call)
A provision that gives issuers the right to call bonds due to unforeseen or unusual circumstances, which is most common with municipal revenue bonds. Reasons an issuer might use an extraordinary call provision include the destruction of a capital project by a natural disaster, prepayment of mortgages backing a housing bond, or the delay in completion of constructing an electric utility power plant. The terms of the redemption are stipulated in the official statement for the bond. Housing revenue bonds are most likely to have this type of call provision evoked.
Bonds with extraordinary call provisions require extra due diligence from investors. If you buy a bond with an extraordinary call provision at a price above par value and the bond is called, you would generally receive par value and forfeit any premium paid for the bond.
Face Value Amount
The principal amount the bond is expected to pay on maturity.
For mortgage-backed securities, the factor is the ratio of principal outstanding to the original balance. For example, a mortgage-backed security with a factor of 0.75 has 75% of principal remaining in the pool. The other 25% has already been paid back to investors.
Federal Deposit Insurance Corporation (FDIC)
A federal government agency that promotes public confidence in the U.S. financial system by insuring qualified deposits in banks and thrift institutions for up to $250,000; by identifying, monitoring, and addressing risks to the deposit insurance funds; and by limiting the effect on the economy and the financial system when a bank or thrift institution fails. The $250,000 standard maximum deposit insurance amount was made permanent on July 21, 2010, and coverage limits apply per depositor, per insured institution for each ownership category.
Federal Funds Rate (or Fed Funds Rate)
Interest rate charged by banks with excess reserves at the Federal Reserve to other member banks needing overnight loans. This target interest rate is set by the Federal Reserve Board of Governors at each of the eight annual Federal Open Market Committee (FOMC) meetings.
Federal Home Loan Mortgage Corporation (FHLMC)
Commonly known as "Freddie Mac," FHLMC was created by Congress in 1970 to stabilize the nation's residential housing market and expand opportunities for home ownership in the U.S. Like Fannie Mae, Freddie Mac purchases mortgages from lenders, guarantees them, and resells them to investors. Freddie Mac bonds are not direct obligations of the U.S. government but are government agency bonds. Freddie Mac is a publicly traded company, and its debt obligations are fully taxable.
Federal National Mortgage Association (FNMA)
Commonly known as "Fannie Mae," FNMA was created in 1938 to support housing during the depression by providing stability and liquidity to mortgage lenders. Fannie Mae purchases mortgages from lenders, guarantees them, and resells them to investors. Fannie Mae bonds are not direct obligations of the U.S. government but are government agency bonds. Fannie Mae is a publicly traded company, and its debt obligations are fully taxable.
Federal Savings and Loan Corporation
A public corporation, established in 1934, that insures all deposits in member savings and loan associations, up to a specified amount.
Fill or Kill
Orders that must be executed immediately and completely or not at all and cancelled.
Financial Industry Regulatory Authority (FINRA)
The largest regulator of brokerage firms in the U.S.; its role is to protect investors by ensuring fairness in the securities markets.
Fixed Income Security
A type of investment with a return coming from payment of a specific amount of money on a stated, periodic basis and the return of principal at maturity. A variety of institutions issue fixed income securities, including the U.S. government, state and local governments, and publicly held companies. There are many ways to get exposure to fixed income securities, including individual bonds, CDs, bond mutual funds, bond ETFs, and managed accounts.
A coupon rate that remains constant for the entire term of the security.
A coupon rate that is determined using a reference benchmark, usually at a spread over or under the specified reference rate. Coupon adjustments are made periodically, such as monthly or semiannually. Examples of reference rates are the Treasury bill or CPI-U Index.
Foreign (i.e., Non-U.S) Bond
A debt obligation issued by a foreign sovereign government or private corporation. Foreign bonds may be issued in a foreign currency or the U.S. dollar.
General Obligation (GO) Bond
A municipal bond that is issued to raise money for schools, roads, and various other public improvements. The money to service the bonds comes from taxes and some user fees. GO bonds are usually backed by the full faith and credit of the issuing municipality.
Government Agency Bond
A debt obligation issued and guaranteed by an agency of the U.S. government or by a government-sponsored enterprise (GSE). Agencies and GSEs (such as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation) sell bonds to raise capital, which is loaned to farmers and homeowners. Agency bonds are not explicitly backed by the U.S. government and are obligations solely of the issuing agency.
Government National Mortgage Association (GNMA)
Commonly known as "Ginne Mae," GNMA was created in 1968 to promote home ownership. Mortgage-backed securities guaranteed by GNMA are backed by the full faith and credit of the U.S. government. Unlike Fannie Mae and Freddie Mac, GNMA does not purchase mortgages or package and sell them to investors; it only provides a guarantee to principal and interest payments.
High-Yield Bond ("Junk Bond")
A fixed income security with a credit rating below investment grade or Baa3 or BBB-.
Hours of Operation
Schwab Fixed Income Specialists are normally available for portfolio consultation and trading assistance Monday through Friday from 8:30 a.m. to 6:00 p.m. ET. Call 800-626-4600.
Hybrid Preferred Security
A classification of preferred stock. Hybrid preferreds are usually issued from a trust or special purpose entity (SPE) created to issue preferred shares and typically pay fully taxable interest to investors.
Include Only (I)
Icon that indicates you only want to include one of the choices in a search request.
Failure to pay interest or principal on a loan when due; or the issuer is in violation of loan covenants.
Field that indicates the type of payment made on a hybrid preferred security: interest or dividend.
A security with an interest payment based on the performance of a specific index rather than a fixed rate. See variable rate.
For TIPS, the dollar value of an inflation adjustment on a given principal amount that has accumulated since the security's initial offering.
A number multiplied by the par value of TIPS to adjust for the level of cumulative inflation since the bond was issued. For example, if there has been 5% cumulative inflation since a TIPS was issued, the inflation factor is 1.05 (1 + 0.05).
A floating-rate certificate of deposit with a periodic coupon based on the level of inflation, as measured by the CPI-U.
Inflation Risk (Purchasing Power Risk)
The risk that inflation will erode the real return on investment. This occurs when prices rise at a higher rate than investment returns and, as a result, money buys less in the future. The risk is greatest if you're investing over long periods of time. Inflation-protected securities may be used to mitigate inflation risk.
A municipal bond or other security insured by a third party to enhance the credit rating (and safety) of the issue. If the issuer cannot make debt payments, then the insurance provider must pay them.
Insured Letter of Credit
Insurance purchased by U.S. banks on letters of credit issued by partner banks in developing or risky economies. Letter of credit insurance protects U.S. banks against nonpayment by the issuing banks.
A fixed income security with a credit rating of BBB- or Baa3 or above. See credit rating.
Any entity that sells securities such as bonds, notes, and preferred stock to raise capital. Issuers include the U.S. Treasury, government agencies, and corporations.
Issuer Legal Name
The legal, incorporated, or registered name of the issuer.
City and state of the issuer of the security.
Interest Rate Risk
The risk that the value of a fixed income security will fall as a result of a change in interest rates. This risk may be reduced by diversifying the maturities of fixed income investments or investing in floating-rate securities.
A fixed income security with a credit rating below investment grade or Baa3 or BBB-. Also known as high yield. See credit rating.
An investing strategy that seeks to generate a stable cash flow by buying a series of securities with staggered maturity dates, such as every six months, each year, or every two years. For example, $60,000 could be invested equally in one-year, two-year, and three-year bonds. Every year, $20,000 would mature and could be reinvested for another three years. If interest rates rise, this principal could be reinvested at higher rates; if rates fall, most of the portfolio would remain invested in longer-term, higher-rate bonds.
Letter of Credit
Generally issued by a bank, a letter of credit guarantees principal and interest payments on bonds.
The price designated by a buyer or seller when entering a limit order.
A security that's accepted for trading on an exchange.
London Interbank Offered Rate (LIBOR)
The interest rate that banks charge each other for large loans. It is commonly used as a reference rate for adjustable-rate mortgages and floating-rate securities.
The relative ability of a security to be sold without substantial transaction costs or reduction of value. The harder it is to sell a security or the greater the loss in value resulting from a sale, the greater the liquidity risk.
Make-Whole Call Provision
A type of call feature that allows a borrower to pay off bonds early with a lump-sum payment based on the net present value of all future coupon and principal payments. The provision specifies the rate used to calculate the net present value, such as a spread over a Treasury bond with a similar maturity.
The requirement that a holder of a security surrender the security to the issuer or its agent (e.g., a tender agent) for purchase at the date and price shown.
A portfolio of individual securities managed on a discretionary basis by an asset management firm. Each account follows a focused strategy within a specific asset class or investment style. Investors generally choose asset managers based on the styles and strategies that align with their personal investment goals or to round out their total asset allocation structure.
An order to buy or sell a security at the best available price. Usually guarantees execution but not price.
Markup or Markdown
Fee charged by brokerage firms for fixed income trades when the firm acts as principal, as compensation for negotiating and executing trades on behalf of investors.
Material Deal Change
Changes that are made to the key terms of a bond offering during the underwriting period. Common with new-issue municipal bonds, these changes can take place any time before the bond deal is finalized and pricing takes place. They can include change in price and yield, change in coupon rate, combined maturities, and cancelled maturities.
Required ongoing disclosure by municipal issuers about certain events that might affect the value of the securities they have issued. Investors should read material event disclosures before buying securities. To research material events on a proposed purchase or a bond you currently hold, visit emma.msrb.org.
The date when the issuer of a fixed income security must repay the principal amount to the holder.
Search function that screens for securities that mature within a specific time frame.
Minimum Coupon Field
Search function that screens for securities with a specified minimum coupon rate.
Minimum-Maximum (Amount Available) Increment Amounts
Range of accepted face value amounts.
Minimum Yield to Maturity Field
Search function that screens for securities with a specified minimum yield to maturity.
Moody's Minimum Rating
Search function that screens for securities with a specified minimum Moody's rating.
Bond credit rating provided by Moody's Investors Service and available through Schwab BondSource® on the Search Results and Order Verification pages. (See credit rating.)
Mortgage-Backed Pass-Through Security
A type of security that's backed by a package of mortgages. Principal and interest from the underlying pool of mortgages "pass through" to investors as they are paid by homeowners.
Mortgage-Backed Security (MBS)
A fixed income security that's secured by real estate loans. Investors receive payments from the interest and principal paid on the underlying mortgages.
A short name describing the housing program under which a mortgage-backed security was issued.
A debt security issued by states, cities, counties, and public enterprises to finance government projects and other expenditures. Interest is usually exempt from taxation by federal, state, and/or local authorities. Note: For the bond to be of state taxes, the investor must reside in the same state where the bond was issued or there must be individual reciprocity agreements between states.
Municipal Securities Rulemaking Board (MSRB)
A self-regulatory organization that oversees broker-dealers and banks that market, trade, and underwrite municipal bonds, notes, and other securities issued by state and local governments.
Negative Credit Watch
A credit-rating agency's indication that it may soon downgrade the rating of an issue or issuer. See credit watch.
A method of issuing municipal bonds where the issuer selects a specific underwriter(s) to assist in structuring and pricing the deal and to take the lead in coordinating the offering of the bonds to the public. Firms that underwrite negotiated deals generally know when they will be able to obtain bonds for their customers.
Negotiated sales in which Schwab may have access to bonds are eligible for online orders. Orders for negotiated sales may also be placed by calling a Schwab Fixed Income Specialist at 800-626-4600, weekdays between 8:30 a.m. and 6:00 p.m. ET.
Stock or bond being offered to the public for the first time.
A newly issued certificate of deposit.
Next Call Date
The next date on which the issuer may call the security per the call schedule.
Next Call Price
The price at which the bond can be called by the issuer on the next call date per the call schedule.
Next Coupon Date
Date when the next interest payment is due.
Next Step Date
Next date when the coupon rate will adjust.
Securities that cannot be redeemed by the issuer prior to maturity. Note: The security may have other call features, such as extraordinary or make-whole provisions.
A debt security, usually maturing in one to 10 years.
The price at which a seller is willing to sell a security. Also known as the ask price.
A document that discloses material information regarding a newly issued fixed income security. Also known as the offering document.
Field that indicates the type of order: limit or market.
As Step 3 of the order-entry process, order acknowledgment lets you view your order. It's the final page in the order entry process.
As Step 2 of the order-entry process, order verification allows you to review your order and any relevant messages before placing the order.
The par value of a mortgage-backed security at the time it was issued.
Original Issue Discount
Indicates whether the security was issued at a discount from par value. It is the difference between the stated redemption price at maturity and the issue price.
The market for securities that are not listed on a central exchange. Instead, buys and sells occur directly between two parties.
The face value of a bond, or the amount the issuer is expected to pay when the bond matures. Fixed coupon payments are usually based on par value.
Payment in Kind
Bonds or preferred stocks whose interest or dividends are paid in additional securities, instead of cash.
A security with no stated maturity date.
Interest income that accrues to investors but is not yet received. Taxes are generally due on phantom interest in the year in which they accrue. Common with TIPS.
Positive Credit Watch
A credit-rating agency's indication that it may soon upgrade its rating of an issue or issuer. See credit watch.
A class of stock that pays dividends or interest that must be paid out before dividends to common stockholders. Like bonds, preferreds have a credit rating, may be callable, and may have a maturity date. However, they do not carry voting rights. Preferreds rank higher than common stock but lower than bonds in a company's capital structure. As a result, a company's preferred stock credit rating is generally lower than that of its bonds.
Preliminary Official Statement (POS)
A preliminary version of the official statement; before the official statement has been finalized, the POS is used to describe new-issue securities during the underwriting process.
Term used to describe the price of a fixed income security whose market price is above par value. This occurs when the yield to maturity is below the coupon rate of the security.
A bond whose future payments have been funded by issuing new bonds. See advance refunding.
For mortgage-backed securities, the risk that principal is repaid more quickly than anticipated, resulting in a shorter average life and a lower return on investment.
Shows the price of a bond, usually as a percentage of par.
Define a minimum, incremental, and maximum order quantity.
The dollar value of a transaction based on the bond price multiplied by the quantity of bonds being traded.
Public Securities Association Standard Prepayment Model (PSA)
Used to evaluate prepayment speeds for mortgages, particularly when calculating potential yields on mortgage-backed securities given different interest rate changes. The higher the PSA, the faster the security is expected to return principal.
A security that has a put feature, giving the bondholder the right to force the issuer to redeem the security at specified dates before maturity.
The price at which the holder of a security with a put feature can force a redemption by the issuer. The put price is set at the time the security is issued and is usually par value.
Shows the dates, frequency, and prices at which the security holder can force the issuer to redeem the security.
Shows the type of put on the security: optional or mandatory.
Quantity (Face Value)
Field where the client enters the amount of bonds or CDs to be purchased.
Field that uses criteria to screen for products.
Bid and ask prices shown for a security. This is the current price at which you can buy or sell the security.
Rating Effective Date
The date the credit rating was issued or reaffirmed by the rating agency.
Field that shows the various rate changes for a security with a stepped-rate coupon.
Risk that cash flows from an investment will be reinvested when interest rates are lower, resulting in a possible reduction in cash flow. To mitigate reinvestment risk, an investor can purchase noncallable bonds, which are not subject to early redemption and/or ladder bond maturities at different intervals over time.
Newly issued corporate fixed income securities designed for retail investors. Generally, they are issued weekly and can be purchased in increments of $1,000 with no accrued interest. Retail notes are sold directly from the issuer at par and are unsecured and subordinated obligations of the issuing company. They also have survivor's options. Retail notes include direct access notes, CoreNotes, InterNotes, and PowerNotes.
A municipal bond backed by the revenue from projects, such as airports, toll roads, hospitals, utilities (electric, water, or sewer), public leasing, and housing.
Bond credit rating provided by Standard & Poor's and available through Schwab BondSource® on the Search Results and Order Verification pages. See credit rating.
S&P Minimum Rating Field
Search for a security by specifying the minimum acceptable S&P credit rating.
School Bond Loan Program
Provides state support for school district municipal bond issues. Qualified public school districts may borrow money from the program to pay the principal and interest on qualified bonds.
Schwab Acts as Principal
When Schwab buys and sells securities from its own account and acts as the counterparty in a client trade.
Schwab's proprietary electronic trading system that searches across all major fixed income trading platforms and aggregates quotes from hundreds of dealers.
Securities owned by Schwab for sale to clients.
Search by CUSIP
Search for a bond or CD by its CUSIP number. See CUSIP.
Search by Product
Search for a bond by product type (e.g., corporates, municipals).
Search by Price
Search for a security based on price.
A security that is bought and sold between investors after its original issuance.
Schwab's internal security identification number.
Where a security ranks in relation to others issued by a company in terms of priority of cash flows for payment of interest, dividends, and principal should the issuer be required to liquidate through bankruptcy.
The date by which securities must be paid for and delivered. For bonds, settlement is usually three business days after the trade was executed.
An account to which the issuer must make periodic payments to be used to redeem specific outstanding bonds. A sinking fund may be required by the bond indenture to improve the likelihood of repayment. If the issuer fails to make payments to the sinking fund, it can result in default.
Sinking Fund Schedule
The schedule of payments an issuer must make to a sinking fund, including the final repayment date.
Sinking Fund Type
Describes the method used to buy back bonds though sinking fund payments. Amounts each year to be repurchased can be decreasing, equal, increasing, or differing par amounts.
Bond search results are initially sorted by maturity date first, and then by best yield to maturity (APY for CDs).
The risk that a non-U.S. government or non-U.S. government agency will not honor their financial commitments, causing investors' bonds to lose value or become null and void.
A type of redemption provision specified in the official statement that gives the bond issuer the right to call the bond due to an unforeseen or unusual occurrence. Circumstances specified can range from natural disasters to changes in the tax laws, or things such as canceled projects or prepaid mortgages that back a housing municipal bond.
The difference in yield between two securities or groups of securities. Spreads are usually calculated by comparing an investment's yield to maturity to a U.S. Treasury with a similar maturity.
A debt obligation issued by a corporation to fund expansion and other activities considered to be of speculative quality and subject to higher credit risk, as judged by the bond ratings assigned by one of the major bond-rating agencies: a rating of BB or lower from Standard & Poor's or a rating of Ba or lower from Moody's.
The final maturity date of a mortgage-backed security.
A fixed income security that pays a predetermined schedule of coupon rates rather than a constant rate of interest. The rates gradually increase, or "step up," over a specified time frame. The coupon may step up only once or more frequently until the security is called or matures, whichever comes first.
STRIPS (Separate Trading of Registered Interest and Principal of Securities)
A U.S. Treasury program in which the future coupon and principal payments of a Treasury bond are sold as separate securities. STRIPS are offered in amounts of $1,000 or more and pay no periodic interest but are sold at a discount and redeemed at face value.
Subject to AMT
Indicates that a municipal bond may be subject to the federal alterative minimum tax.
Subject to Phantom Interest
Indicates that accrued income is subject to tax in the year it accrues; the tax will be calculated at the investor's income tax rate.
A bond that backs the performance of another bond. In the asset-backed securities market, a surety bond is an insurance policy typically provided by a monoline insurance company to guarantee against default.
In the event of an investor's death prior to maturity, this feature gives the investor's estate the right to redeem the bond or CD at par. Also called a "death put."
Taxable Income (Federal)
Field that indicates whether a municipal bond's interest is subject to federal tax.
Tax-Equivalent Yield (TEY)
The pretax yield that a taxable bond would need to earn to be equal to the yield on a tax-free security. This calculation converts the yield on a tax-free security into the equivalent yield for a taxable security and can be used to compare taxable and tax-free investments.
The formula for tax-equivalent yield is: TEY = tax-free yield / (1 – tax rate)
On Schwab.com, TEY is calculated from the municipal AAA tax-free yield and a 35% federal tax rate. This does not reflect the effects of any state or local taxes, which may increase the tax-equivalent yield. For questions about calculating your individual rate, see your tax advisor.
Field that indicates the taxability of a municipal bond.
TBA Mortgage-Backed Security
A TBA or "to be announced" MBS is a newly issued security where the actual mortgages in the investment pool are not designated at the time the trade is made.
A bond that is trading without accrued interest. This may occur when a bond is in default.
Normal fixed income trading hours are Monday through Friday from 8:30 a.m. to 5:00 p.m. ET.
At Schwab, a CD that is a brokered, noncallable, new-issue, and fixed-rate.
A debt security issued by the U.S. government, usually maturing in more than 10 years. Treasury bonds pay interest semiannually. The income that holders receive is only taxed at the federal level. Treasury bonds are issued with a minimum denomination of $1,000.
Treasury Inflation-Protected Security (TIPS)
A U.S. Treasury security with a return linked to the Consumer Price Index (CPI-U). At maturity, TIPS are redeemable at either the inflation-adjusted principal or face value, whichever is greater. TIPS can be purchased twice a year at auction and are available with 5-, 10-, and 20-year maturities.
A financial firm, usually an investment bank, that purchases a bond or note from the issuer and resells it to investors.
Unit Investment Trust (UIT)
A fund that purchases a fixed portfolio of securities, such as corporate, municipal, or government bonds; mortgage-backed securities; or common or preferred stock. Unit holders receive principal and interest in proportion to the amount of capital they invest.
A loan that is not secured by an underlying asset or collateral.
A coupon rate that is determined by the performance of a specified market index or security basket. See floating rate.
The time period between the first and last expected payment of principal for a mortgage-backed security.
The annual rate of return expressed as a percentage of the market price for that day for the security.
A graph that compares the interest rates for bonds of equal quality over a range of short- to long-term maturity dates. The most common yield curve compares the interest rates for 3-month, 2-year, 5-year, and 30-year U.S. Treasury debt.
Yield to Call (YTC)
The annual rate of return assuming a bond is redeemed on the first or next call date.
Yield to Maturity (YTM)
The annual rate of return assuming a bond is held to maturity and all of the interest payments are reinvested at the original rate. Also known as the internal rate of return (IRR) for the bond.
Yield to Worst (YTW)
The lowest potential rate of return for a bond. The lower of YTC or YTM.
A bond that does not pay interest and is sold at a deep discount from face value. Instead, the investor receives one payment, which includes principal and interest, at maturity.
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