Financial Dictionary: Get To The Meaning In 2 Sentences Or Less

401K – An investment account offered by some companies to employees who can place pre tax dollars inside the account and defer taxes on investment returns until withdrawal.

Accrued Interest – Interest that has been earned but not distributed.

Actively Managed Fund – A mutual fund where a manager has flexibility to make investment choices which he or she believes will perform better than the market.

Agencies  – An agency can be a division of the federal government or a corporation that was chartered and given special rights by the government.  Agency bonds which are the bonds issued by government agencies are also sometimes referred to simply as “agencies”

Agency Bond – A bond issued by a division of the federal government or a corporation that was chartered and given special rights by the US Government.  A large portion of agency bonds are issued by Fannie Mae and Freddie Mac.

Alpha – The return on investment that cannot be attributed to general market performance.

AM Best – Ratings agency which specializes in rating insurance companies.  This is important for annuity investors.

American Call – The ability to call a bond at any point in time after a specific date.

Annuity – An insurance product usually used to generate income for retirement in a tax deferred manner.

Ask Price – The market price where you can buy a security such as a bond.

Assessment bonds – Also referred to as a special assessment bond or special purpose bond.  An assessment bond is a type of municipal bond that is used by government entities, such as a county or city, to raise funds to improvements to government owned properties.  Taxes are levied on the community that is benefiting from the project, which provides interest to the lenders.

Asset – An asset is really anything that has an economic value.  Assets derive their value from two characteristics, their ability to generate future cash flow or a the willingness of others to pay to own an asset.  For example, a piece of land is an asset, you can rent the land generate a regular stream of income or you could sell the land to someone else. A piece art (Picasso’s sell for tens of millions) is also an asset, although it general will not generate income.

A company’s assets will impact its ability to pay bondholders in the case of bankruptcy. The greater the proportion of a company’s assets in all relation to its debt, the more money, the bondholders are likely to recover. Some bonds are backed by specific assets.
asset class    An asset class is a group of investments which share similar characteristics in terms of risk and return.  Major asset classes include stocks, bonds, and cash.  Asset classes can also be narrower in scope.  “High growth midcap stocks” and “US government bonds” are both examples of more narrowly defined asset classes

Bankrupt – When a company is unable to meet its financial obligations, such as paying interest to bond holders, and asks the court for protection from its creditors.

Bankruptcy – The process through which a company files for relief from having to pay its creditors.  In the US there are two types of bankruptcy chapter 7 and chapter 11.

Basis Point – 1/100th of a percent. Generally used when talking about interest rate movements.

Bearer Bond – A bond in which physical possetion is considered ownership.  Bearer bonds are no longer issued in the United States.

Benchmark – What the returns of an investment are compared against or targetting to achieve.  A popular benchmark which a stock investor or mutual fund would target to match or beat is the S&P 500 Index.

Bermuda Call – A Bermuda call gives the issuer the right to periodically call a bond on specific dates.

Beta  – The return on an investment which can be attributed to overall market performance.

Bid Price – The market price at which a security such as a bond can be sold at.

Bond – A bond is a way for a corporation or government entity to borrow money from the the public in a structured manner.  It is a loan in which a corporation or government entity agrees to pay back a certain amount of money over a specific period of time with a pre determined rate of return.

Bond market – When someone invests in a bond they are buying the debt of a company or government entity and they do so through the bond market.  Unlike the stock market the bond market is an over the counter market which means the transactions do not go through an exchange like the New York Stock Exchange.

Bond price – The cash value at which you can buy or sell a bond.  For most types of bonds their price fluctuates over time.

Budget Gap – A budget gap occurs when expenses exceed revenues.  When a government spends more over the course of the year than its income from taxes, fees and any other sources.

Bullet – An investment strategy of choosing securities which all mature on a specific date.

Call Date – The date at which a bond can be called.

Call Premium – The amount of extra return that bond issue must pay an investor for the right to call.  A 10 year bond which is callable after 5 years would pay a premium over the same bond without the right to call.

Callability – Whether or not a bond includes a call option giving the right to the bond issuer to purchase the bond back before maturity.

Callable – A bond in which the issuer has the right to prepay and “recall” the bond before its maturity date.

Capital gain –  The profit realized from buying and selling an investment.  Generally capital gain is meant to mean “long term capital gain” which has favorable tax implications.

capital loss – The loss realized from buying and selling an investment. Generally capital loss is mean to mean “long term capital loss” which has tax implications.

Commission – The amount of money which a broker or agent receives in exchange for selling a security.  This is paid in addition to the spread.

Commercial Paper – Corporate debt with a maturity of less than 12 months.  Commercial paper is usually sold at a discount rather than paying interest payments.

Compound Interest – Return that is earned from interest paid on interest.  In order to earn compound interest must be paid periodically and reinvested.

Compounding Period – How often interest is compounded.  Daily compounding would mean that interest compounds every day.  Monthly compounding would mean that interest compounds every month.  The more frequent the compounding the better it is for the investor.

Consumer Price Index (CPI) – A measure of US inflation which is calculated by the Bureau of Labor Statistics and is based on a fixed basket of goods and services meant to represent the average consumer’s purchasing habits.

Consumer Price Index All Urban Consumers (CPI-U) – A variant of CPI which is specifically designed to represent the inflation level of people who live in cities.  CPI U is important because the interest payment on I Bonds is partially based on CPI U.

Convertible – debt which can be turned into stock under certain conditions which are generally favorable to the bond holder.

Convexity – convexity measures the change in duration as an interest rate move becomes larger.

Corporate bond – Debt issued by a corporation.

Correlation – The tendency of multiple things to behave in concert.  Investments which tend to move in the same direction in the same time are said to be highly correlated.

Counterparty – The other members of a transaction in which you are engaged.  When buying a bond the seller is your counterparty.

Counterparty Risk – Counterparty risk is when you are involved in a transaction that your counterparty will not fullfill their obligation.  For example, in many financial transactions when you buy a security the counterparty has two days to deliver the security.  The counterparty risk here is that the security will not be delivered to you or conversely that you will not receive payment for selling a security.

Coupon – A single periods interest payment on a bond.  Most bond has two coupon payments per year of a fixed amount of money.  A 10 year bond with a coupon of 6% would pay $300 every 6 months.

Credit Default Swap (CDS) – A credit default swap is an instrument which protects you against the default of a bond.  Usually this is not available to individuals however the cost of a Credit Default Swap is used as a realtime indication of default risk.

Credit quality – The likelihood of default on a debt such as a bond.  Credit quality is synonymous with credit rating.

Credit risk – The risk that a debtor will default.

Credit Spread – The difference in interest rates between two securities.

Creditor – The loaner of money.

Current Yield –  The annual coupon payments of a bond divided by the current market price of a bond.

CUSIP – The unique identification number given to a bond by the American Bankers Association.

Dealer – The person or entity responsible for executing a bond trade.  When you trade with your broker the broker places your trade with a dealer.  A dealer earns their money through the spread.

Debtor – The borrower of money

Default – When a bond issuer fails to meet its obligations to pay interest or principal to its bond holders.

Default risk – The risk that a bond issuer will default.

Deferred Annuity – An annuity which does not provide an immediate income stream but will make a payment at a later pre determined date.

Deficit – A deficit occurs when expenses exceed revenues.  Deficit can refer to an amount of debt in total or a budget gap.  For example the US Government deficit is over $14 Trillion however the deficit in any one year is a fraction of that number.

Deflation – The opposite of inflation.  When prices fall in value and purchasing power increases.

Denomination – The amount which a security is sold for or increments in which they are traded.  For example most bonds are traded in denominations of $1000 face value.

Discount bond – A bond which is sold at a price below its face value.

Discount Rate – The rate at which banks can borrow directly from the Fed.  Generally banks avoid doing this because it involves a stigma so it is used as a last resort.

Diversification – Diversification means not putting all your eggs in one basket.  This can take the form of holding multiple asset classes or investments with uncorrelated returns.

Diversify – Diversify means not putting all your eggs in one basket.  This can take the form of holding multiple asset classes or investments with uncorrelated returns.

Dividends – Profits which are distributed to shareholders of a company.

Double Barreled Bond – A double barreled bond is a municipal bond which is backed by both a revenue stream and the faith and credit of the municipal entity which issued the bond.

Dow Jones Industrial Average (DJIA) – An index of 30 large cap (meaning big) publicly traded companies.  Often times when people say the stock was up or down today they are talking about the Dow Jones Industrial Average.

Duration – Duration is how much a 1% move in interest rates will change the market price of a particular security.  For a bond with a duration of 6, a 1% upward move in interest rates would decrease the value of the bond by 6%.  Also the duration number indicates how long in years it will take to recover the price of the bond from the bond’s revenue.

Early Withdrawal Penalty  – The return an investor gives up for withdrawing money prior to an agreed upon date.  Typically CD’s and Annuities have early withdrawal penalties.

Economic Indicator – A statistic which is compiled to measure a certain aspect of business or overall economic activity.  Examples of economic indicators are Gross Domestic Product and Non Farm Payrolls.

EE Savings Bond – A US Government bond designed for individuals which pays a fixed rate of return and cannot be traded.

Embedded option – An embedded option gives the right to the buyer or seller of a security to take a specified action at a future date under certain conditions.  An example of an embedded option would be a call option on a bond.

Emerging Market bonds – Bonds issued by corporations and governments in countries which which are not considered developed nations.  The most popular emerging market bonds are from the “BRICS”, bonds issued from Brazil, Russia, India and China.

EMM – Stands for Electronic Municipal Market Access which is a service provided by the MSRB which reports on and distributes market data on municipal bond transactions.

Equity – Equity represents ownership.  The term “equity” and “stock” are used interchangeably.

European Call – A call option which gives the issuer the right to call a bond only on a specific date.

Exchange Traded Fund (ETF) – An investment fund representing a portfolio of investments.  ETF’s are like mutual funds but they trade on an exchange and can be bought and sold like a stock.

Face value – Also known as par value, the amount of money which a bond holder receives at the maturity of the bond.

Fannie Mae – The nickname for the federal national mortgage association.  Fannie Mae is a government sponsored entity that was founded to promote home ownership.

Federal Deposit Insurance Company (FDIC) – An independent government agency responsible for the protection of deposits in US banks.  In the US money deposited in a checking, savings, money market account, or CD is insured against loss by the FDIC for up to $250,000.

Federal Funds Rate – The interest rate at which banks lend money to one another overnight.  The federal reserve has an official target for this rate which they achieve through monetary policy.

Federal income tax – Tax paid on income from earnings including interest and short term capital gains to the federal government.

Federal Open Market Committee (FOMC) – The decision making body of the Federal reserve responsible for executing monetary policy.

Federal Reserve – The central bank of the united states responsible for monetary policy, regulatory oversight of the banking institutions, maintaining the stability of the financial system and providing financial services to banks.

FINRA – The self regulatory organization charged with regulating stock brokers. Through its TRACE system provides transaction data on corporate and agency bonds.

Fitch – One of the three primary credit ratings agencies.

Fixed Annuity – A fixed annuity is an annuity in which the rate of return is known in advance and is fixed at a given rate for a specified number of years. Fixed annuities are generally thought of as being similar to CDs.

Fixed Index Annuity – An annuity whose return is based on the performance of the stock market, but is guaranteed not to loose principal.

fixed rate    An investment is said to have a “fixed rate” of return when its income stream does not change for the life of the investment.  For example a 10 year 6% fixed rate bond with a face value of $1000, pays a total of $60 per year in interest each year for 10 years.

Flat Yield Curve – A yield curve where long term rates are similar to short term rates. Flat yield curves normally exist in times of economic weakness.

Freddie Mac – The nickname for the federal home loan mortgage corporation. Fannie Mae is a government a government sponsored entity which promotes home ownership.

full faith and credit – A government guarantee that principal and interest payments will be made.

general obligation – An unsecured debt.  This is a term that is normally associated with municipal bonds and means that the bonds are backed by the government entity and not the revenues specific project.

GO Bond – Short for general obligation bond.

government charter – A company which was created by a legislative act for a specific purpose generally thought to be in the interest of the general public.

Gross Domestic Product (GDP) – A dollar value tally of all goods and services produced inside the United States.

Growth Fund – A fund whose primary goal is capital appreciation.  Growth funds normally carry a higher level of risk in their pursuit of higher returns.

GSE – Short for Government Sponsored Entity. Debt issued by GSE’s have the implicit but not explicit backing of the US Government.

GSE Bonds – Bonds issued by GSE’s.  GSE bonds are a form of agency bonds.

Guaranteed Principal – Banking products as well as annuities (with the exception of variable annuities) have their principal guaranteed.  This means that you cannot loose any of your initial investment.

Health Savings Account – A tax advantaged account that can only be used for medical expenses.

Hedge – An action taken to limit the risk of loss on an investment.

High Yield Bond – A non investment grade bond which pays a higher yield than its investment grade counterparts.  Also referred to as a junk bond.

High Yield Checking Account – A checking account which offers a higher rate of interest than traditional checking accounts.

Humped Yield Curve – A yield curve where medium term securities out yield shorter and longer term securities.

I Savings Bond – A US Government bond designed for individuals which pays a rate of return that includes both a fixed component and an inflation indexed component.

Immediate Annuity – An annuity which starts generating a steady income stream within a year of purchase.

Income stream – An income stream is the future payments derived from an investment.  Examples of an income stream would be the semi annual coupon payments from a corporate bond or the monthly payments from a immediate annuity.  In the case of a corporate bond the income stream comes from the interest payments made on the bond.  In the case of an annuity the income stream comes in the form of both interest and the repayment of principal.

Income tax – the tax paid on earnings including interest and short term capital gains.

Indenture – The contract between the bond issuer and bond holder which details the terms of the debt.  Included in the indenture are things like when interest will be paid, call options etc.

Index – An index is designed to measure the performance of an overall market or group of investments. An example is the S&P 500 Index which measures US stock market performance.

Indexed Annuity – see fixed indexed annuity

Individual Retirement Account (IRA) – An investment account that allows you to place pre tax dollars inside the account and to defer taxes on investment return until withdrawal.

Inflation – The upward change in prices of goods and services over time.

Inflation risk – The risk that inflation will reduce the value of the investment in real terms, meaning in terms of the purchasing power of what money from the investment could buy.  Normally in the US it is assumed that inflation will be between 2 and 4% per year.  If inflation were to go higher than that, the expected real returns would be lower than expectations.

Interest – Interest when you are talked about in relation to the payment on an investment refers to the compensation you receive for loaning money.

Interest income – Income earned from interest payments.

Interest payment – The payment made by a debtor to a creditor for the right to borrow money.

Interest rate risk – When holding a fixed rate security the risk that interest rates will rise, lowering the market price of your investment and forcing you to accept a return that is lower than is available in the marketplace.

Interest Rate Speculation – An investment which is made based on assumptions about future interest rates and whose return is tied to fluctuations in interest rates.

Inverted Yield Curve – A yield curve in which longer term securities pay a lower rate of return that shorter term securities.  This is often a leading indicator of an economic slowdown.

Investment Grade – Bonds that are considered to have a low likelihood of default.  Technically an investment grade bond is a bond with a credit rating of greater than BB+.

issue (bond issue) – Verb: To bring to market a new bond offering.  Noun: A specific bond that can be uniquely identified with a CUSIP number.

Issue Date – The date which a new bond starts accruing interest.

issuer – The corporation or government entity which is raising money through the bond market.

Japanese Government Bond (JGB) – A bond issued by the Japanese Government.

Jobless Claims – Short for Initial jobless claims.  An economic indicator which measures how many people have filed for unemployment benefits.  Jobless claim and unemployment claim mean the same thing.

Jumbo CD – A jumbo CD is a CD which generally requires a minimum deposit of $100,000.  Because of the larger deposit requirement jumbo CD’s normally pay a higher rate of interest.

Junk Bond – see high yield bond.

Junoir – another word for subordinated debt.

Laddering – An investment strategy in which money is divided between investments with different maturity dates.  When the investment with the closest maturity date matures it is re invested in an investment with a maturity equal to the previously longest maturity date.  Typically this is done with CD’s or bonds and provides protection against interest rate risk.

LIBOR – Short for London Interbank Offer Rate.  This is the average overnight rate which banks charge each other for US Dollar denominated deposits held outside the United States.

Lifetime Withdrawal Benefits – An immediate annuity which pays a periodic income until the death of the annuity holder.

Liquid – see liquidity.

Liquidation Value – The value of a company assets if they were sold in a fire sale.  This is used as an estimate of what bondholders of a secured debt would receive at bankruptcy.

Liquidity – Describes the amount of buyers and sellers and frequency of transactions in a market.  Liquid markets have low transaction costs because there is lots of competition between buyers and sellers for trades.  If the market for an investment is liquid you can easily transact in that market.

Liquidity risk – The risk that you will not be able to sell an investment for its fundamental value because there are not enough buyers and sellers in the market for that investment to efficiently execute a trade.

Long term capital gain – The profit realized from buying and selling an investment which is held over 12 months.  Long term capital gains are generally taxed at a lower rate than ordinary income.

Long term capital gain rate – The tax rate for profits earned by buying and selling an investment which is held over 12 months.  The long term capital gains rate is currently 15%.

Maturity – The amount of time until the maturity date.

Maturity date – The date which interest payments are completed and the principal is repaid.

Mezzanine – another word for subordinated debt.

Monetary Policy – How the federal reserves or other central bank influences economic activity through control of the money supply.

Money market – The market for securities with very high credit ratings and maturities of less than 1 year.  Money Market Accounts and Money Market Funds invest in money market securities.

Money Market Account – An FDIC insured bank account which invests in money market instruments.  Normally money market accounts pay a higher rate of interest than savings or checking accounts and have restrictions on how many monthly withdrawals you can make.

Money Market Fund – A mutual fund which invests in money market securities.  Often money market funds are confused with money market accounts.  The big difference is that money market funds are not FDIC insured.

Money market instrument – A security with very high credit ratings and maturities of less than 1 year.  Money Market Accounts and Money Market Funds invest in money market securities.

Moody’s – One of the three major credit ratings agencies.

Morningstar Rating – A rating associated with a mutual fund or annuity meant to give investors an idea of the quality of that investment.  Ratings go up to 5 stars.

Mortgage Backed Security – A security whose interest and principal payments are based on the interest and principal payments that property owners make on their mortgages.

Muni bond – short for municipal bond.

Municipal Bond – A bond issued by a state or local government entity.

Municipals – A bond issued by a state or local government entity.

mutual fund – Where the funds of multiple investors are pooled together into one investment vehicle.  One of the benefits of mutual funds is diversification.

NCUA – National Credit Union Association and the equivalent of the FDIC for credit unions.

Net – The return or total after fees or expenses and transaction costs are deducted.

No load    A mutual fund or other type of investment which does not charge a fee for depositing and withdrawing money.

Nominal Rate of Return – The rate of return not adjusted for inflation.

Nominal Yield – The yield not adjusted for inflation.

Non Callable – A bond which does not include a call option.

Non Qualified Dividend – A dividend which is not paid by a corporation and is therefore taxed at the ordinary income rate. Interest dividends from bond mutual funds are non qualified dividends.

Normal Yield Curve – An upward sloping yield curve where long term rates are higher than medium term rates which are in turn higher than short term rates.

Off the Run – Usually off the run refers to treasuries which are not the most recently issued for that type of bond.  Generally they are slightly less liquid than the most recent issue.

On the Run – The most recent issue of a US Treasury of a specific maturity and type.

ordinary income – An accounting term that describes interest income or income derived from buying and selling a security within a 12 month timeframe.  Your ordinary income tax rate is also the rate that you are taxed at on salary income.

Original Issue Discount (OID) – The discount which the buyer of a bond recieves from the face or par value when a bond is first issued.

Over the Counter (OTC) – Not traded through a centralized exchange.  Most bonds are traded over the counter.

Par Value – the face value of a bond which is the amount that you receive at maturity.

Passively Managed Fund – A mutual fund whose investment decisions are based on a pre determined set of rules.  Normally a passive mutual fund is a fund designed to mimic the return of a specific index.

Portfolio – A group of investments.

Pre Payment Risk – The risk that the principal of a bond or loan will be paid back before the bond’s maturity date. Mortgage Backed Securities can suffer from prepayment risk.

Premium bond – A bond which is sold at a price which is above its face value.

Present Value – What future payments are worth in today’s dollars when adjusted for a normal rate of return.

Primary Market – The original sale of a bond occurs in the primary market.  Once a bond has been sold for the first time in the primary market it trades in the secondary market from that point forward.

Prime Rate – The rate available on home loans to borrowers with the highest credit rating.

Principal – The money you place into an investment excluding investment gains.

Principal payment – The repayment of a loan which reduces the amount which is owed.

Qualified Dividend – A dividend paid by a US Corporation or qualifying foreign corporation.  Qualified dividends are taxed at the long term capital gains rate which is normally lower than the ordinary income tax rate.

Quantitative Easing – A monetary policy tool used when the fed funds rate and discount rate are close to zero which allows a central bank to make purchases of longer term securities in order to further increase the money supply.

Quote – The bid and ask price of the security.

Ratings – In the context of fixed income ratings is short for credit ratings or bond ratings and are an analysis of the credit risk of a bond issuer and/or bond issue.  When it is said that a company has been downgraded it means that a ratings agency has lowered the rating of the company and believes the risk of default is higher.

Ratings downgrade – When a credit ratings agency such as Standard and Poor’s, Moodys, or Fitch lowers the credit rating of a bond issuer and/or bond issue.  The highest rating is AAA and it goes down from there in alphabetical order.

Real Rate of Return – The rate of return when adjusted for inflation.

Reinvestment risk – When an investor receives cash from an investment either from its sale or through distributions such as interest, the risk that that the investor will not be able to invest that cash for the same or a higher rate of return.

REPO – REPO is short for repurchase agreement.  In a REPO transaction an entity sells a security and at the same time agrees to buy the security back at a specified later date, at a pre determined higher price.  The purpose of a REPO is to give the seller immediate cash and the buyer a very safe return.

Revenue bonds – Bonds which are backed by the revenues from a specific project.

SEC – Securities and Exchange Commission.  The SEC is the government agency responsible for the regulation of the stock market including exchanges and brokers.

Secondary Market – The market where bonds or other securities trade after being issued in the primary market.

Secured bonds – Bonds which are backed by specific assets. IN the case of bankruptcy those assets would be sold to pay back the holders of the secured bond.

Senior debt – Debt which is first in line to be paid in the event of bankruptcy.

Shareholders – The owners of a company.

Sinking Fund – A portion of money which is set aside to periodically pay repurchase outstanding debt of a specific issue.

Smart Exchange – A product of the US Treasury department which enables paper savings bonds to be converted into electronic bonds.

Sovereign Bond – A bond issued by a national government.

Speculation – The buying or selling of an investment for short term gains.

Spread – The difference between two prices.

Standard and Poors (S&P) – One of the three main credit ratings agencies.

Stock market – When someone invests in the stock of a company there are buying a small piece of ownership in the company and they do so through the stock market.  Often times when people refer to the health of the stock market they are talking about an index such as the Dow Jones or S&P which measure the overall value of a select group of companies.

STRIPS – A zero coupon bond which has been created by removing its coupon payments.

Sub prime – Borrowers with a low credit rating.

Sub prime crisis – The 2008 financial crisis caused by the default of many sub prime borrowers on their mortgages.

Sub prime mortgage – Mortgages made to individuals with low credit ratings.

Subordinated debt – Debt which is not first in line to be paid back in the event of bankruptcy.

T Bills – Short for Treasury Bills.  US Government debt with a maturity of less than 1 year.  These bonds do not pay interest but are sold at a discount to face value.

T Bonds – Short for Treasury Bond.

T Note – Short for Treasury Note.

Tax bracket – As your income rises so does the percentage of your income which you are required to pay in tax.  The lowest federal tax bracket is currently 10% and the highest is 35%.

Tax Exempt Bond – A bond whose interest payments are free from either state and local taxes and/or federal taxes.

Taxable equivalent yield – The rate of return needed for a taxable bond to equal the after tax returns of a tax exempt bond such as a municipal or treasury bond.

Term – The length of a bond or CD.

TIPS – Short for Treasury Inflation Protected Securities, TIPS are US Government bonds whose principal value is adjusted periodically for inflation.

Treasuries – US Government Bonds

Treasury Bills  – US Government debt with a maturity of less than 1 year.  These bonds do not pay interest but are sold at a discount to face value.

Treasury Bond – A US Fixed Rate Government bond which matures in more than 10 years.

Treasury Direct – The service provided by the US Treasury department which allows for the online purchase and redemption of savings bonds and other types of treasury securities.

Treasury Hunt – The place where you can look up EE savings bonds that have matured by your social security number.

Treasury Note – US government Debt with a maturity of greater than 1 year and less than 10 years.

Underwriter – The investment bank responsible for selling a primary bond issue.

Unemployment – Short for unemployment rate.  An economic indicator which measures the number of people who would like to have work but do not, compared to the overall number of people with and without jobs who want to work.

Unsecured bond – Bonds which are backed by the legal obligation of the entity to make payment but not backed by specific assets.

Upgrade – When a ratings agency provides a bond issuer or issue a more favorable credit rating.

US Treasury – The agency of the Federal Government which is charged with issuing and managing the government’s debt.

Variable Annuity – An annuity whose value fluctuates based on investment choices and market returns.

Variable rate – An investment with a variable rate of return has an income stream which fluctuates based on an index or some other variable such as investment performance.

Volume – The amount (in dollar value or number of transactions) of trades taking place in an investment or market over a period of time such as a day, month, or year.

Yield – Two definitions.  1. In the context of bank products such as CD’s Savings accounts and money market accounts, yield refers to your interest rate after compounding has been included.  This is also called Annual Percentage Yield or APY for short.  2. In the context of bonds yield generally refers to yield to maturity which is an estimate of the total annualized rate of return based on the current market price of the bond.

Yield Curve – A graph of the yields paid by the same type of bond with both short and long term maturity dates.

Yield to Call – An estimate of the annualized return of a bond based on the current market price which assumes the bond is called at the earliest callable date.  This estimate includes the premium or discount to face value based on the current market price, coupon payments, the reinvestment of coupon payments.

Yield to maturity (YTM) – An estimate of the annualized return of a bond based on the current market price, when held to maturity.  This estimate includes the premium or discount to face value based on the current market price, coupon payments, the reinvestment of coupon payments.

Yield to Worst – The lower of the Yield to Maturity or the Yield to Call.

Zero coupon bonds – A bond that does not make coupon interest payments.  A zero coupon bond is sold at a discount to face value.  Your return is made from the difference between the price you pay for the bond and the face value of the bond which you receive at maturity.