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  • Glossary of Terms

    A

    • Accrued Interest
      Interest that has accumulated since the last interest payment up to, but not including, the settlement date.
    • Accrued Ratio Growth
      Flat Index Ratio - Index Ratio
    • ACT/360
      Day count convention that counts the exact number of days until the next payment, assuming 360 days in a year (i.e., take the exact number of days in a period and divide it by 360).
    • ACT/ACT
      Day count convention that counts the exact number of days until the next payment and makes no assumptions (unlike a 30/360 convention that assumes 30 days in each month and 360 in a year).
    • Adjusted Hit Rate

      EUGV Trades

      The adjusted hit rate is a trade hit rate calculated on all inquiries, with the exception of observations, where any of the following applies:

      • Fewer than two responses are received.
      • No responses received within the Tradeweb composition.
      • Inquiries are launched outside regular trading hours.

      IRS Trades

      A trade hit rate calculated on all inquiries excluding those that elicit less than two responses.

       

      TRSY trades

      A trade hit rate on outright inquiries, excluding those that have ended with less than two quotes or no quotes at or better than the Tradeweb composite (during US trading hours).

    • Announcement Date
      Date on which the Treasury first announces that a security will be auctioned.
    • Asset Currency
      First currency in a FX Options currency pair.
    • Asset Swap
      Swap in which fixed and floating investments are exchanged. Additional spread earned over the implied 3-month LIBOR, in exchange for the fixed rate payments of the bond.
    • Auction Date
      Date on which the security is auctioned and assigned a coupon.

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    B

    • Base Consumer Price Index (CPI)
      Level of CPI at issuance, based on a three-month lag.
    • Basis Point (BP) Spread
      Difference between the net repo, or break-even repo, and the actual repo rate. When this spread is positive, the bond earns positive carry and bond revenues exceed the financing cost.  Conversely, the bond earns negative carry if the spread is negative and the net repo rate is less than the actual repo rate.
    • Best X
      Money saved by trading at or better than the cover price for a security. It is the total proceeds difference between the executed price and the cover price.
    • Bollinger Bands

      Used to measure the highness or lowness of the price relative to previous trades. Bollinger Bands consist of:

      • A middle band being an N-period simple moving average.
      • An upper band at K times an N-period standard deviation above the middle band.
      • A lower band at K times an N-period standard deviation below the middle band.

      Typical values for N and K are 20 and 2, respectively. The simple moving average is of the trailing type, not the centered type; in the trailing type, the average is plotted at the time-coordinate of the n-th  price, not at the median time-coordinate of the set of N prices.

    • Bond Equivalent Yield
      Restates semi-annual, quarterly, or monthly yield into an annual yield.
    • BP Spread (Positive and Negative Carry)

      Difference between net repo, or break-even repo, and the actual repo rate. If this spread is positive, the bond is said to be earning positive carry. That is, the revenues from the bond exceed the financing cost.  If the spread is negative, meaning that the net repo rate is less than the actual repo rate, the bond is said to be earning negative carry. The cost of financing the position in the repo markets is greater than what the bond is yielding.

       

      In a positive yield curve environment, where yields of longer-term maturities are greater than shorter ones, holding longer-term notes and bonds and financing them overnight generates positive carry. If the yield curve is inverted, where short-term yields are higher than long-term yields, then financing bonds overnight will generate negative carry.

    • Break Even
      Difference between the nominal yield and the inflation-adjusted yield. Break even considers the relationship between inflation-protected and nominal bonds.
    • Breakeven Price
      The breakeven price is the price at which a transaction produces neither a gain nor a loss.
    • Breakeven Repo Rate
      Implied rate earned by holding the security.  For example, a 30-year bond yielding 8.00% may be financed overnight at the prevailing 7.00% repo rate.

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    C

    • Call Date
      Date on which a security can be redeemed before maturity.
    • Call Option
      Provides the buyer (holder) the right, but not the obligation, to buy an underlying asset at a pre-specified price and future date.
    • Call Price
      Price at which the security can be redeemed on the Call Date.
    • Cash Flow Analysis

      Cash flow analysis calculates the effective return of a bond and incorporates all cash flows of the bond from purchase to maturity.  When purchased, the cash outflow of the bond includes price plus accrued interest.  At maturity, the cash inflows comprise:

      • Principal, or face value
      • All coupon payments
      • Interest-on-interest income received from reinvesting the coupons until maturity.
    • Clean Tax Status
      JGBs registered to a tax-exempt entity and deposited in a Furiketsu account.
    • Compound (CMPD) Yield
      Yield that assumes coupon payments are invested at market rate and rolled over until the bond matures.
    • Consumer Price Index (CPI)
      Used to adjust the principal of inflation-indexed securities, the Consumer Price Index represents price changes at the consumer level. Specifically, the NSA CPI-U (Non-Seasonally Adjusted, Consumer Price Index for all Urban Consumers) is applied; this index is reported monthly and compiled, like all CPIs, by the Bureau of Labor Statistics.
    • Convexity
      Measure of the relationship between bond prices and bond yields. It demonstrates how the duration of a security changes as interest rates change.
    • Cost of Carry
      Cost associated with borrowing capital to purchase a security.
    • Coupon
      Interest rate determined at auction. Periodic payments are made at this rate to the holder of the security. Example: For a $1000 bond with a coupon of 5%, you receive 50 dollars per interest payment.
    • Cover Price
      The second best dealer quote provided during a multi-dealer trade negotiation.
    • CPI
      See Consumer Price Index.
    • Current Yield
      Annual coupon divided by the bond's market price. Unlike the coupon alone, the current yield incorporates the current price of the bond; however, it is an inadequate measure of yield because it does not take into account the accrued interest of the bond or the timing of the cash flows.
    • CUSIP
      ID of the registered security as issued by the Committee on Uniform Security Identification Procedures. The CUSIP is a 9-digit alphanumeric ID and applies to securities on North American exchanges only.

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    D

    • Dated Date

      First day on which the security begins accruing interest.

       

      Note: If the security has been re-issued or re-opened, the Dated Date still applies to the original security.

    • Dirty Price
      Bond price that includes the present value of all future cash flows plus the interest accruing on the next coupon payment.
    • Dirty Tax Status
      Taxable JGBs that were once registered to a taxable entity or deposited in a Furiketsu taxable account. Dirty tax status only applies to sells.
    • Discount
      Discount rate at which the bill is sold.
    • Discount Basis
      The practice of quoting a security in terms of a discount from its par value.
    • Discount Margin
      Used to assess the relative value of a floating rate security (e.g., a Floating Rate Note [FRN]), the Discount Margin is the return earned in addition to the underlying index. Discount margin measures the average margin over the reference rate that can be earned over a security's lifetime, assuming a certain path that the rate will take to maturity. Discount margin is analogous to the yield for fixed-rate securities.
    • Discount Rate
      Discount securities are non-interest-bearing money market instruments that are issued and traded on a discount basis. They are quoted using either an Actual/360 or an Actual/365 day count convention. Discount securities include U.S. Treasury bills, commercial paper and banker's acceptances (BAs).
    • Discount Securities
      Non-interest-bearing money market instruments that are issued and traded on a discount basis. They are quoted using either an Actual/360 or an Actual/365 day count convention. Discount securities include U.S. Treasury bills, commercial paper and banker's acceptances (BAs).
    • Dollar Duration
      Measure of the sensitivity of the security's principal value to a change in interest rates. Also known as Macauley Duration.
    • dPdY
      delta Price delta Yield. Synonymous with risk and Dollar Duration. It is the derivative of price with respect to yield; therefore, for a small change in yield, DY, you can calculate a bond's change in price, dP.
    • Duration
      Measure of the sensitivity of the security's principal value to a change in interest rates. Also known as Macauley Duration.
    • Duration (Macaulay's Duration)

      The duration, or Macaulay’s Duration, named after its originator, is the present value of a security’s cash flows weighted by time. This is a popular risk measurement for market participants.

       

      The formula for calculating duration for a series of cash flows is as follows:

       

      Duration = (1 x CF1/(1 + Y) + 2 x CF2/(1 + Y)**2 + ...
                 ...+ n x Cfn/(1 + Y)**n)/P

       

      where:   CF1, CF2, ..., Cfn are cash flows 1 through n
               Y is the yield of the security
               n is the number of cash flows
               P is the price of the security including accrued interest

       

      Duration calculates the average time of all cash flows received for the security quoted in years. That is, all the payments distributed over time are equivalent to one large payment at duration.

       

      The following diagram depicts the cash flow of a typical bond. At settlement, the buyer must pay price plus accrued interest to purchase the bond. If the security is held to maturity, the bondholder will receive regular coupon payments up to and including maturity. At maturity, the bondholder will receive the full face value of the bond.

       

      Price + Accrued Interest                                Principal + Coupon n
        ↓         Coupon 1    Coupon 2                                      ↓                                                                                    
        ↓            ↑          ↑                        ↓      
        |-------------------------------Maturity-------------------------------|

       

      The series of cash flows for the bond is equivalent to one cash flow at duration, as depicted in the following diagram.

       

      Price + Accrued Interest              Cash flow 
        ↓                               ↑
        ↓                               ↑
        |---------------- Duration -------------|
        |---------------------------- Maturity -------------------------|

       

      Mapping all the cash flows into one period makes it easy to evaluate the interest rate risk of various securities.

       

      The following example illustrates the duration of a bond. Consider again the U.S. Treasury bond, 7.625 of 2/15/2025. It was offered at 100-25 for settlement on 2/27/95. The duration is 12.198 years.

       

      Though the bond matures about 30 years from the settlement date, its duration is only about 12 years. In theory, this bond behaves as one cash flow that is only 12 years out.

       

      Basic discounted cash flow analysis explains this phenomenon. Coupons closer to the settlement date are worth considerably more than cash flows near maturity. Even the principal amount of 100% when discounted from 30 years at a yield of 7.558% is worth only 10.8% of face value. The duration calculation weighs the earlier cash flows more heavily than the later cash flows due to the time value of money. This explains why even a 30-year bond has an effective duration of 12 years.

    • Duration and Bond Immunization

      Market participants frequently use the concept of duration to immunized portfolios. Since many institutional investors have liabilities that must be met on schedule with the proceeds of a bond portfolio, immunization attempts to ensure that regardless of what happens to interest rate levels between the present and the due date of one’s liabilities, enough cash will be available to meet them.

       

      Duration allows investment managers to construct a portfolio that immunizes a fixed-income portfolio against liability streams. Bond immunization, using duration as a tool, is a financial technique employed to protect a series of future cash flow requirements funded by a fixed-income portfolio from interest rate changes.

       

      For example, a fund manager may have a liability at a known future date for which he wants to have sufficient funds. He wants to buy a bond today to cover this future liability without having to worry about inevitable changes in interest rates. That is, he wants to make immune his future liability from interest rates. By buying a bond with a duration equal to his investment horizon, the future liability will be covered mostly by the bond for a range of interest rate environments.

       

      To understand how duration works, one must first understand market risk and reinvestment risk.

       

      Market Risk
      Market risk, also called price risk, measures the price sensitivity of a bond with respect to changes in interest rates. When interest rates rise, the price of the bond falls; when interest rates fall, the price of the bond rises. The change in price due to a change in interest rate levels is called market risk. Market risk has an immediate impact on the price of the bond when interest rates change.


      Reinvestment Risk

      A bondholder receives periodic coupon payments from his investments. These coupon payments can be reinvested to earn additional income. Assuming the bondholder keeps the bond until he sells it at his investment horizon, he would receive the following cash flows: (1) the price plus accrued interest from the buyer of the bond at the horizon date, (2) all the coupon payments he received since he purchased the bond, and (3) the interest on interest he received from reinvesting his coupon payments.

       

      The first cash flow component is market risk. Interest rate changes directly affect the price of the bond. The second cash flow component, the coupon payments, is fixed. That is why bonds are called fixed-income securities. The coupon payment is known; and therefore, its cash flow is not affected by changes in interest rates. The last cash flow component, interest on interest, is reinvestment risk. It is affected by changes in interest rates.

       

      When interest rates rise, the reinvestment income is higher. When interest rates fall, the reinvestment income is lower. Therefore, when general levels of interest rates change, they affect both market risk, the price of the bond, and reinvestment risk, the future income derived from reinvesting coupon payments. Reinvestment risk affects investments in the long term.

       

      The interesting thing about market risk and reinvestment risk is that they tend to offset each other. When interest rates rise, bond prices fall but reinvestment income increases. When interest rates fall, bond prices rise but reinvestment income falls.

       

      From the previous section we know that market risk and reinvestment risk tend to offset each other when interest rate levels change. If the investment horizon is equal to the duration of the bond, the market risk is equal to the reinvestment risk.

       

      This is the special property of duration. With an investment horizon equal to the duration, the return on the investment to the horizon date will remain relatively constant for various interest rate scenarios. The change in the price of the bond is offset by the change in the reinvestment income. Therefore, the total return to the horizon date is the same. Duration is a powerful tool for an investment manager to buy a bond to protect a future liability with a fair degree of immunization from interest rate movements.

      Risk Profile

          Value Date                   Duration                        Maturity
            |                Increasing |   Increasing   |
            |           <--  Market Risk |   Reinvestment Risk  --> | 
            ---------------------------------------------------------------
             

      Market risk is greatest if the investment horizon is close to the current valuation date. If you are planning to sell the bond tomorrow, you are not concerned about reinvestment income; however, you are concerned if rates rise considerably between today and tomorrow as your bond will tank (drop rapidly in price). Traders that are in and out of the markets for short periods of time are much more concerned about market risk.

       

      Reinvestment risk is greatest if the investment horizon is at maturity. The compounding effect of reinvested coupons is very significant. If the bond is being held to maturity, there is no market risk. The bond at maturity will return a 100% face value. If interest rates rise or fall, the bond will still return face value at maturity - no more, no less.

       

      At an investment horizon equal to duration, the market risk is equal to the reinvestment risk. They cancel each other out. By using duration, portfolios can be structured to fully defend a future series of cash flows, which is called bond immunization.

      Rebalancing a Portfolio

      Investment managers must periodically reevaluate the duration of their portfolios for several reasons. First, as time passes, a bond’s duration decreases. Secondly, duration is also affected by large price changes. Thus, even though a dedicated bond portfolio may have immunized cash flow liabilities, the investment manager must reevaluate it regularly. Changes in assumptions or liability streams will also affect the portfolio. Adjustments may be necessary to actively manage the portfolio. That is, the portfolio must be rebalanced to match the investment objectives.

       

    • Duration and Zero-Coupon Bonds

      The duration of a zero-coupon bond is equal to its maturity. Since duration is a weighted average time to a bond’s cash flow, the weighted average time to one cash flow at maturity, which is the cash flow of a zero-coupon bond, is exactly equal to its maturity. In fact, for any security that has one payment at maturity, such as many money market instruments, the duration is equal to the maturity.

       

      Given a regular coupon-paying bond and a zero-coupon bond of the same maturity, the zero-coupon bond will have a higher duration and therefore a higher interest rate risk.

    • Duration Versus Maturity

      Duration is frequently used as a measure of interest rate risk. Generally, the higher the duration of a security, the more sensitive it is to interest rate changes. By calculating the duration for various securities, market participants can compare on a relative basis their interest rate sensitivity.

       

      Duration is a better risk measurement than maturity. A longer maturity does not necessarily imply higher interest rate risk. Maturity does not take into account the coupon effect to interest rate risk of the bond. Bonds with lower coupons have higher interest rate risk since most of the cash flows are received later, whereas bonds with higher coupons have lower duration and therefore lower interest rate risk. Given two bonds with identical maturities, the duration of a lower coupon bond will be higher than a bond with a higher coupon.

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    E

    • Effective Duration
      Measure of the security's price sensitivity to changes in interest rates.
    • Effective Risk
      Risk derived from money yield calculations, taking inflation into consideration. It is associated with Effective Duration, and in Tradeweb, is used to compute a hedge ratio for swaps involving a TIPS security.
    • EUGV Hit Rates
      See 'Adjusted Hit Rate' and 'Hit Rate'.
    • European Style Option
      Means that the option can only be exercised on the expiry date, with settlement usually two days later, in keeping with the spot settlement cycle.
    • Expiry (FX Options)
      Last day on which an option can be exercised (the last trading day).

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    F

    • Face Value/Par Amount (# of Bonds)
      Amount paid by the issuer to the holder at maturity. Different security types have various face value denominations. Most bonds are quoted in multiples of $1,000 face value. For example, 10 bonds would be equivalent to holding $10,000 face value of a bond.
    • Fibonacci Fan Lines
      A charting technique consisting of three diagonal lines that uses Fibonacci ratios to help identify key levels of support and resistance. Fibonacci fans are created by first drawing a trendline through two points (usually the high and low in a given period), and then by dividing the vertical distance between the two points by the key Fibonacci ratios of 38.2%, 50% and 61.8%. The result of these divisions each represents a point within the vertical distance. The three 'fan' lines are then created by drawing a line from the leftmost point to each of the three representing a Fibonacci ratio.
    • Fibonacci Retracements
      Refers to the likelihood that a financial asset's price will retrace a large portion of an original move and find support or resistance at the key Fibonacci levels before it continues in the original direction. These levels are created by drawing a trendline between two extreme points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.
    • First Accrual Date
      First date on which the security accrues interest.
    • First Coupon

      For most bonds, the first coupon is the same as any other coupon. However, if the dated date is different than the normal anniversary dates of coupon payments, the first coupon may be different than the regular coupons. This is called an odd-first coupon. If the coupon is greater than the normal coupon, it is referred to as a long-first coupon. If the coupon is less than the normal coupon, it is referred to as a short-first coupon.

       

      If an issuer decided not to pay the extra day of accrued interest and opted instead to have the dated date be the same as the issue date, the first coupon would be a short-first coupon. It would have one day less interest than a normal coupon. All subsequent coupons would be regular coupon payments.

    • First Coupon (Odd-First Coupon, Long and Short First Coupon)
      The first coupon of a bond is usually the same as any other coupon. However, if the dated date is different than the normal dates of coupon payments, the first coupon may be unlike the regular coupons. This is called an odd-first coupon. If the coupon is greater than the normal coupon, it is referred to as a long first coupon. If the coupon is less than the normal coupon, it is referred to as a short first coupon.
    • First Coupon Date
      First nominal coupon date. This date sets the coupon schedule and is not adjusted for weekends or holidays.
    • Flat Index Ratio
      CPI at last coupon / CPI at issue
    • Flat Principal
      Flat price x dollar price x $1 million
    • Floating Rate Note
      Note with a variable interest rate, meaning that the coupon interest will vary over the security's lifetime. Rate adjustments usually occur bi-yearly and are based on a specific money-market index.
    • Following
      Business day convention. Payments or contractual transactions that fall on a non-business day are assumed to be executed on the following business day.

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    G

    • Gross Amount
      Index Ratio x Price x $1 million. The principal on a TIPS trade ticket is the gross amount.

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    H

    • Harmonized Indices of Consumer Prices (HICPs)
      Designed for international comparisons of consumer price inflation, HICPs are economic indicators that measure changes over time in the prices of consumer goods and services acquired by households. They mainly measure inflation in the euro-zone, the EU, and the European Economic Area. In Tradeweb, you can view the HICPs on the Trade Index Detail page.
    • Hedge
      Eliminating, offsetting or reducing risk.
    • HICP
      See Harmonized Indices of Consumer Prices.
    • Historical French CPI ex T
      Consumer Price index that measures inflationary changes of goods and services used in French households. It excludes tobacco usage.
    • Historical Japan CPI Ex FF
      Japanese Consumer Price index that measures inflationary changes of goods and services used in Japanese households. It excludes fresh food due to the volatility of food prices.
    • Hit Rate
      The number of times an individual user submits an inquiry versus the number of times he completes a trade.
    • Horizon Date
      Proposed date, prior to the maturity date, to which a security might be held and is used to calculate horizon return.
    • Horizon Price
      Assumed price of a security at a specified horizon date.
    • Horizon Return Analysis
      Performed for some horizon date before maturity. Assumptions must be made about the reinvestment rate as well as the future yield or price of the security at the horizon date.
    • Horizon Yield
      Assumed yield of a security based on the horizon price at a specified horizon date.

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    I

    • I Spread
      Interpolated LIBOR Spread. Using a swap curve rate with the same maturity date as the bond being analyzed, the I spread is calculated as bond yield minus the interpolated rate.
    • ILB
      Index-Linked Bonds. Because their yields are tied to the inflation rate, these bonds offer a hedge against future inflationary fluctuations, and their outstanding principal rises with inflation. ILBs are also tied to the cost of consumer goods, and their par value adjusts in relation to the method that each country uses to calculate consumer goods. For example, in the U.S., the consumer price index (CPI) is used; in the EU, the Eurozone HICP is used. One final note is that each country has its own agency that issues ILBs (e.g., Gilt ILBs are issued by the U.K. Debt Management Office).
    • IMM
      See International Monetary Market definition.
    • Index Ratio
      Quantifies the amount of inflation from the bond's issuance date to its settlement date. The Index Ratio is an integral part of calculating Treasury Inflation-Protected Securities (TIPS).
    • Inflation Accrual
      Accrued Ratio Growth x Price x $1 million
    • Inflation Compensation
      Additional return generated by an increase in inflation.
    • Inflation Rate
      Percentage increase in the price of goods and services, usually expressed annually.
    • Interest on Interest
      Income from the reinvestment of interest payments.
    • Interest Rate Swap
      Agreement between two counterparties to exchange payments on a given notional amount. One party typically pays a fixed rate at a given frequency while the other pays a floating rate (i.e., market-quoted rate with a specific maturity and frequency like a 3 month LIBOR). To use the bond metaphor of buying and selling, the fixed leg is the basis of the transaction in that you pay for or receive the fixed rate. Receiving is equivalent to a long bond position, and paying is like the short position; therefore, the floating leg is the means by which you fund the long or short position.
    • International Monetary Market (IMM)
      The International Monetary Market (IMM) is a division of the Chicago Mercantile Exchange (CME) and is an exchange for trading currency and interest rate futures and options. In Tradeweb you can trade IMM swaps, which start and roll on IMM dates (i.e., the third Wednesday of every third month--March, June, September and December), with our IRS and DSWP products.
    • IRS Hit Rates
      See 'Adjusted Hit Rate' and 'Hit Rate'.
    • ISIN
      International Securities Identification Number. It is a 12-digit alphanumeric ID for securities on exchanges worldwide.
    • Issue Date
      Date on which the security first settles.

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    M

    • MACD
      See Moving Average Convergence / Divergence.
    • Maturity
      Date on which the security will mature.
    • Mav (Moving Average)
      The average of security prices constructed on a period as short as a few days or as long as several years and showing trends for the latest interval. For example, today a ten-day moving average includes yesterday's figures; tomorrow the same average will include today's figures and will no longer include those from the earliest date. Thus, every day the moving average picks up figures for the latest day and drops those for the earliest.
    • Modified Duration
      Expresses the measurable change in a security's value in response to a change in interest rates. It is the percentage change in price for a 100 basis-point change in yield.
    • Modified Following
      Business day convention. If the payment date or transaction does not fall on a banking day, it is executed on the next banking day. However, if that date extends into a new month, the banking day that precedes the payment date is used.
    • Money Market Equivalent (True)
      MME that adjusts to the next business day.
    • Money Market Equivalent Yield
      Bond yield assuming simple interest and an ACT/360 day count.
    • Moving Average Convergence / Divergence

      A trend following indicator designed to identify trend changes. It's generally not recommended for use in ranging market conditions. Three types of trading signals are generated:

      • MACD line crossing itself
      • MACD line crossing 10
      • Divergence between price and 10

      The signal line crossing is the usual trading rule. This is to buy when the MACD crosses up through the signal line, or sell when it crosses down through the signal line. These crossings may occur too frequently, and other tests may have to be applied.

       

      The histogram shows when a crossing occurs. When the MACD line crosses through zero on the histogram it is said that the MACD line has crossed the signal line. The histogram can also help visualizing when the two lines are coming together. Both may still be rising, but coming together, so a falling histogram suggests a crossover may be approaching.

       

      A crossing of the MACD line up through zero is interpreted as bullish, or down through zero as bearish. These crossings are of course simply the original EMA(12) line crossing up or down through the slower EMA(26) line. Positive divergence between MACD and price arises when price makes a new sell-off low, but the MACD doesn't make a new low (i.e. it remains above where it fell to on that previous price low). This is interpreted as bullish, suggesting the downtrend may be nearly over. Negative divergence is the same thing when rising (i.e. price makes a new rally high, but MACD doesn't rise as high as before), this is interpreted as bearish.

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    N

    • Net
      Calculated on the trade ticket as Principal + Accrued Interest
    • Net Profit (Loss)
      Net profit or loss of the transaction. This is the income derived from the bond minus the financing costs. To do a proper cost-of-carry analysis, market participants must evaluate both the revenue and expenditure side of the transaction. Also, they must understand the underlying assumptions of these calculations, especially on the revenue side.
    • Notional Principal Amount
      Also referred to as Notional. Principal amount of the underlying security in a swap transaction. The exchanged interest rates and transaction cash flows are based on this principal.
    • Numeraire Currency
      The second currency listed in an FX Option currency pair.

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    O

    • Off Benchmark Spread
      A package involving a plain vanilla, spot-starting Interest Rate Swap for an "off benchmark maturity" (i.e., one that isn't auctioned, such as a 15Y) and two Treasury On-The-Runs on either side of the swap's tenor. For example, the 4Y Off Benchmark Spread has a 3Y Treasury - 4Y IRS USD vs 3M LIBOR - 10Y Treasury configuration.
    • On the Run
      Most recently auctioned Treasury security for a given maturity.
    • Option
      Bilateral contract giving the buyer (option holder) the right, but not the obligation, to buy/sell an underlying asset's specified quantity to the seller (option writer) at a pre-determined price at or by a future date.
    • OTM (Out the Money)
      For a call, when the strike price is higher than the underlying asset's market price. For a put, when the strike price is below the market price.

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    P

    • Pass-Through Security

      Pool of securities backed by assets, like mortgages, and securitized by an agency, which passes through the principal and interest payments to the pool owners, pro rata, keeping a portion of the interest. In essence, a homeowner's payment is passed from the lending bank to investors through a GSE like Fannie Mae or Freddie Mac.

       

      Note: The pass-through rate is lower than the interest rates on the loans due to the GSE and servicing institutions' fees.

    • Pfandbriefe
      Bonds issued by German mortgage banks and collateralized by long-term assets. Similar to US mortgage-backed securities.
    • Pip
      Smallest unit of price traded for a currency, usually four decimals (e.g., 1/100 of a cent). Currencies with high nominal value, like the Japanese Yen, are traded to two decimal points.
    • Premium
      Also known as the option price, the premium is the upfront price paid by an option buyer to the seller to purchase the option.
    • Price
      Typically quoted as a percentage of face value. It is also sometimes referred to as the clean price.
    • Principal
      Face value of the security. On the Tradeweb trade ticket, principal is calculated as quantity x price.
    • Put Option
      Provides the buyer (holder) the right, but not the obligation, to sell an underlying asset at a pre-specified price.
    • PV01 (Price Value of an 01)
      Price sensitivity measure. Pronounced pee-vee-oh-one, it is the percentage change in price corresponding to a one-basis-point (or 0.01%) change in yield.
    • PV01 Per 1MM
      Present value of basis point, per million. This is the dollar amount per million for a 1-basis point change in yield.
    • PV01(32)/YV32(bp)
      Change in price (expressed in 32nds) for a 1 basis-point change in yield / Change in yield for a 1/32nd change in price.

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    R

    • Realized Compound Yield
      Rate of return for reinvestment rate.
    • Redemption
      Return of principal. Upon maturity or cancelation, redemption occurs at par or at a premium.
    • Reference Consumer Price Index (CPI)
      CPI index used to measure inflation on the security's settlement date. It is calculated as [CPI (2 months prior) - CPI (3 months prior)] / [# of days in the current month + CPI (3 months prior)].
    • Reinvestment Rate
      Rate at which cashflows are reinvested.
    • Repurchase Agreement
      Agreement in which the holder of a security sells it to a counterparty (lender) and agrees to repurchase the security at some future time, typically overnight. The funds that are received today must be repaid tomorrow with interest. The interest rate, typically quoted on an Actual/360 basis, is called the repo rate. The same transaction from the lender's perspective is called a reverse repo.
    • Request for Market (RFM)
      Protocol that allows you to request an executable, two-sided (bid and offer) market from a single dealer while preserving client confidentiality.
    • Request for Quote (RFQ)
      Protocol that allows you to request a bid or offer on a specific index from multiple dealers simultaneously. Upon receipt of the RFQ, dealers return their quotes for subsequent execution.
    • Retail Prices Index (RPI)

      Similar to a Consumer Price Index (CPI), RPI is used to adjust inflation-indexed securities. Measuring changes in goods and services used by UK households, it samples retail consumption.

       

      Note: Since 2003, the UK government has tended to set inflationary targets on CPI rather than RPI. Unlike CPI, RPI includes mortgage interest payments and housing depreciation.

    • Risk (dPdY)
      Risk (delta Price delta Yield). This is the actual price change for a one basis-point change in yield. Synonymous with dollar duration.
    • Roll
      Swap transaction between two securities of the same tenor.
    • Roll (Mortgage Dollar Rolls)
      Mortgage pass-through repurchase agreement where the buyer of a TBA trade sells off the same trade in the current month and buys it in a future month (most commonly the next month).
    • RPI
      See Retail Prices Index for more information.

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    S

    • SEDOL
      ID of the registered security, as defined on the Stock Exchange Daily Official List. SEDOL catalogs all securities traded on the London Stock Exchange and on other UK exchanges. It is a seven-digit alphanumeric ID.
    • Settlement Date
      Date on which a security and its payment must be exchanged by buyer and seller. Also known as the valuation date, it should not be confused with trade date, which represents the date that the buyer and seller agree to the amount, price and other trade terms.
    • Simple Moving Average
      The unweighted mean of the previous n data points. For example, a 10-day simple moving average of closing price is the mean of the previous 10 days closing prices.
    • Spot Price
      Live price of an underlying physical asset.
    • Strike Price
      Price at which a derivative contract can be exercised. For call options, the price applies to a buy and for put options, it represents a sell. The difference between the current market price of the underlying security and the option's strike price is the profit gained when the option is bought/sold (for options that are in the money). Strike prices are determined when a contract is first written.

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    T

    • TBA
      To Be Announced. TBAs are mortgage-backed, pass-through securities issued by Fannie Mae, Freddie Mac and Ginnie Mae. The term is derived from the fact that delivery of the securities is not established during the actual trade, but the securities are 'announced' 48 hours before the settlement date. Settlement procedures are established by the Bond Market Association.
    • Total Future Value
      Calculated as Redemption + Coupon Payments + Interest on Interest.
    • Total Income
      Difference between the face amount of the security and the total payment (i.e., face amount minus the rate of discount).
    • Total Payment
      Face amount of the security minus the rate of discount. Also calculated as the Principal + Accrued.
    • Total Return
      Interest rate that matches the price to the projected total future dollars at the end of the investment horizon.
    • Trading Bands
      Useful for a variety of price activities; a band is simply an envelope or channel created by plotting two lines that move at a set distance from a central moving average. In this way, a trading band creates a potential plot for additional study of support and resistance levels, and allows for the recognition of a breakout from a trading band area.
    • Treasury Hit Rates
      See 'Adjusted Hit Rate' and 'Hit Rate'.
    • True Yield
      Internal Rate of Return that accounts for cashflows occurring on weekends/holidays

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    U

    • Unadjusted
      Business day convention. Any payments or contractual transactions occurring on non-business days are assumed to be executed on the actual date.
    • Unadjusted(2)
      Business day convention. Any payments or contractual transactions occurring on non-business days are assumed to be executed on the actual date.

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    V

    • Volatility
      Annualized standard deviation of an underlying asset's returns. Generally, volatility is a parameter for how widely spread a probability distribution may be.

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    W

    • Wertpapier Kenn Nummer (WKN)
      This six-digit ID, similar to an ISIN identifier, is issued in Germany by the Wertpapier Mitteilungen.
    • When Issued (WI)
      Security that can be transacted at a negotiated price before issue. Trade settlement then comes at the official issue.
    • WI WI
      The 3- and 6-month U.S. Treasury bills are auctioned on a weekly basis. Therefore, with a two-week lead-time between announcement and auction, there may be two pending T-bills that are traded on a WI basis. The one nearest to auction is called the WI issue. The one further out is called the WI WI issue.

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    Y

    • Yield
      Income return on an investment, usually taking the form of interest or dividends from a security.
    • Yield Beta
      Correlation between real rates and nominal rates.
    • Yield Curve
      Graph of yields by maturity. The horizontal x-axis represents maturity, while the vertical y-axis displays the yield.
    • Yield to Call (YTC)
      Yield to call is the yield of a bond when assuming that the bond will be redeemed by the issuer at the first call date.
    • Yield to Maturity
      Internal Rate of Return used to present the value of future cashflows if the security is held to maturity. YTM considers current market price, par value, coupon interest rate and time to maturity; likewise, it assumes that all coupons are reinvested at the same rate.
    • Yield Value of a 32nd (YV32)
      Measures the yield sensitivity of a bond for a 1/32 change in price. It gauges the change in yield in basis points to a 1/32 change in price.
    • Yield with Inflation
      Yield with additional inflation compensation.

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    Z

    • Z Spread
      Zero-volatility spread. A static spread, the Z spread considers the cash flows of an amortizing structure to be zero coupon flows. It is the constant spread over the spot curve, equating the projected cash flow to the current bond price + accrued interest.

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    #

    • 30/360
      Day count convention that calculates the number of days until the next payment assuming there are 30 days in a month and 360 days in a year.

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