• Accretion:
  The automatic, incremental increase in price that occurs over the life of a bond that was originally purchased at a discount (below par), which is added to the cost basis. For example, if a 2 year maturity bond is bought at a 98.00 dollar price, after 1 year the adjusted cost basis will be 99 with 1 point of accretion having occurred.
• Accrued Interest:
  The interest that has accumulated on a bond since the last coupon payment. When a bond is purchased between coupon payment dates, the accrued interest is added to the purchase price to compensate the seller for the interest earned while the bond was held.
• Agency Bonds:
  Bonds issued by a government agency such as Fannie Mae, Freddie Mac, or the Federal Home Loan Banks. Most agency debt has an implied guarantee from the Federal Government, allowing for an AAA credit rating.
• Amortization:
  Used to calculate the yield of a bond purchased at a premium, amortization is the writing off of the investment’s premium over its life until maturity.

• Barbell Strategy:
  A portfolio heavily weighted with bonds having both short and long maturities, with little or no holdings of bonds maturing in the middle part of the yield curve.
• Bond Insurance:
  A contract whereby issuers of a bond pay a third party to provide interest and principal repayments in the event the issuer cannot. Bond insurance has become less prevalent since the financial crisis of 2008 as many municipal bond insurers have gone bankrupt from also insuring subprime mortgage securities.
• Book Yield:
  See “Yield on Cost (%)”
• Build America Bonds:
  Municipal bonds that are federally taxable but state tax-exempt for interstate buyers. BABs were introduced in 2009 as part of the American Recovery and Reinvestment Act. The interest payments are subsidized by the Federal government.

• Call Option:
  The right of the bond issuer to redeem a bond before its scheduled maturity.
• Call Date:
  Date, prior to maturity, on which a bond may be redeemed by the bond issuer. Municipalities typically issue bonds with annual call dates, while government agencies issue continuous, quarterly, semi-annual, and annually callable bonds.
• Call Price:
  The price, specified at issuance, at which a bond can be redeemed on the call date. The call price is typically par (100), but can also be a premium price such as 101 or 102.
• Cash:
  Funds awaiting investment. These funds, which are held in money market mutual funds, may be provided by client deposits, payment of bond interest, sale of securities, call of securities, or maturity of holdings. Cash may be reduced by withdrawals, investments in new securities, or fee payments.
• Certificate of Participation (COP):
  A type of municipal bond structure that entitles investors to participate in the lease payments from a particular project. COPs use a leasing structure that offers municipalities a way to finance projects without having to issue long-term debt. COPs usually offer higher yields and have slightly lower credit quality than General Obligation bonds due to their structure.
• Corporate Bond:
  Corporate bonds (also called corporates) are debt obligations, or IOUs, issued by private and public corporations. They are typically issued in multiples of $1,000 and. Companies use the funds they raise from selling bonds for a variety of purposes, from building facilities to purchasing equipment to expanding their business. Corporate Bonds typically pay interest semi-annually and the interest is subject to federal, state and local income taxes.
• Coupon Income:
  The total annual interest income paid by all of the bonds in a portfolio. It represents “gross receipts” from your bond holdings.
• Coupon Rate:
  A bond’s annual rate of interest, expressed as a percentage of the par value of a bond. For a $100,000 bond position with a 4% coupon rate, the owner of the bond will receive $4,000 a year in interest payments.
• Credit Quality:
  A measurement of a bond issuer’s ability to pay principal and interest on their debt in a timely manner. The lower the credit quality of an issuer, the higher the risk that investors will not receive the stated interest and/or principal. Nationally Recognized Statistical Rating Organizations such as Moody’s Investor Service and Standard & Poor’s measure the credit quality of securities and assign letter grades to each security. [see “Credit Ratings”]
• Credit Risk:
  The risk that a bond issuer will default or fail to repay principal and interest in a timely manner. A common way to evaluate the credit risk within a bond portfolio is to look at the credit ratings of the securities within a portfolio as measured by Nationally Recognized Statistical Ratings Organizations (NRSROs) such as Moody’s Investor Service and Standard & Poor’s. SNW Asset Management conducts all of its own credit research and does not rely on ratings agencies to assess credit quality. [see “Credit Ratings”]
• Current Yield:
  Amount of coupon interest received, expressed as a percentage of the current market value of a bond or portfolio. For example, if a bond is priced at $95 and has an annual coupon of $5.00, the current yield of the bond is 5.26%.

• Duration:
  The approximate effect that each 1% change in interest rates has on a bond’s market value. Duration takes into account a bond’s interest payments in measuring bond price volatility and is stated in years. As an example, a 5-year duration means that a bond will decrease in market value by 5% if interest rates rise 1% and increase in value by approximately 5% if interest rates fall 1%.

There are no entries for the letter E.

• Face Value:
  Face value is the amount of principal repaid to the investor when the bond matures.
• Floating Rate Note (FLT):
  Bonds with coupons that are not fixed at issue but rather float or are subject to periodic reset based upon a specified index. An example would be a bond for which the coupon resets every 90 days based upon a U.S. Treasury Bill index. Floating rate or variable rate bonds tend to be attractive investments if interest rates are expected to rise, as their interest payments adjust/float upwards. Also known as a “floater.”

• General Obligation (GO):
  A municipal bond secured by the pledge of the issuer’s full faith, credit and taxing power. The issuer’s levy may be unlimited as to rate or amount (“unlimited tax” or “UTGOs”) or subject to a specified levy limit (“limited tax” or “LTGOs”). GOs are commonly considered the safest municipal bonds because of the broad tax base that secures them.

There are no entries for the letter H.

• Interest Rate Risk:
  The risk of a bond’s value decreasing due to a rise in interest rates. The amount of interest rate risk within a bond portfolio is typically measured by the duration of a portfolio. [see “Duration”]
• Investment-Grade Credit Ratings:
  The following table shows the investment-grade rating categories and their descriptions:

  • AAA Obligations rated AAA are judged to be of the highest quality, with minimal risk.
  • AA Obligations rated AA are judged do be of high quality and are subject to very low default risk.
  • A Obligations rated A are considered upper-medium grade and are subject to low default risk.
  • BBB Obligations rated BBB are subject to moderate credit risk.  They are considered low investment-grade and as such may possess certain speculative characteristics.

There are no entries for the letter J.

There are no entries for the letter K.

• Laddering:
  A technique for reducing the impact of interest-rate risk by structuring a portfolio with regular bond maturities at consistent intervals. For example, one can create a 10 year bond ladder by buying 20 bonds, one maturing every 6 months.
• Liquidity Risk:
  A measurement of the risk that arises when attempting to sell a security.

• Make Whole Call:
  The obligation of an issuer of a bond to pay a premium to an investor if the issuer pays off its bond before the final maturity. The premium is based on a formula (Net Present Value) that compensates the investor for future coupon payments that will not be received because the bonds have been called.
• Market Value of Securities Held:
  The sum, as of the reporting date, of the par value of every bond in the portfolio multiplied by its market price. This number is the estimated total value of all holdings in your portfolio..
• Municipal Bond:
  Debt obligations issued by states, cities, counties and other governmental entities, which use the money to build schools, highways, hospitals, sewer systems, and many other projects for the public good. Municipal bonds can be structured in many ways and vary dramatically in terms of quality.

There are no entries for the letter N.

There are no entries for the letter O.

• Pre-Refunded (PREF):
  Either Indicates bonds that have been “pre-refunded” or “escrowed to maturity.” Pre-refunded bonds are held for redemption at a specified call date prior to maturity; escrowed to maturity bonds are paid at maturity. Pre-Refunded municipal bonds are not backed by the issuer, but rather by US Government bonds which makes them of the highest quality and very liquid.
• Principal Paydown:
  The amount of principal returned to the bondholder over a time horizon. Principal paydowns are common for mortgage backed securities.

There are no entries for the letter Q.

• Revenue Bond (REV):
  A municipal bond issue secured by revenues generated by rate payers for ongoing municipal enterprise such as municipal water or electric utilities, ports, and universities, for example, or from a specific municipal project. Revenue bonds have historically been used to finance municipal utilities, but in recent years have also been secured from more diverse sources such as dedicated sales tax revenues and lease payments for facilities occupied by municipal offices.

• Step-up:
  A bond that pays an initial coupon rate for a period of time, and then a higher coupon rate for the following periods. In other words, the coupon “steps up”. For example a five-year bond may pay a 2% coupon for the first two years of its life and a 5% coupon for the final three years.
• Sustainable Income:
  The amount of income you can safely take from your portfolio without reducing the amount of your investment principal. Sustainable Income usually varies significantly from coupon income as most bonds purchased in client accounts are bought at a discount or premium to par. If every bond in a portfolio was purchased at par (100) the coupon income would equal the sustainable income.

• Taxable Municipal Bond:
  A type of municipal bond for which the interest received is subject to personal income taxes at the bond holder’s effective tax rate (combination of federal and state income taxes where applicable).
• Treasury Inflation Protected Securities (TIPS):
  Treasury securities designed to protect investors from the adverse effects of inflation. Using the Consumer Price Index, the value of these securities’ principal is adjusted to reflect increases in the rate of inflation. If inflation decreases the principle value does not decrease below par.
• Total Adjusted Cost of Securities Held:
  Adjusted cost is a term that describes the current value of principle invested in a particular bond. When purchasing bonds, the price is typically not par but rather a discount (less than par) or a premium (more than par). Because bonds mature at par, if an investor does not pay par when purchasing the bond then the purchase price adjusts incrementally over the life of the bond towards par. The price adjusts upwards if you purchased at a discount and downwards if you paid a premium. The total adjusted cost of securities held is the total value of principle invested in the portfolio as of the reporting date. (See accretion and amortization)
• Total Market Value of Portfolio:
  The sum of the market value of all of the securities held in the portfolio, including accrued interest, and cash/money market funds. This number represents the hypothetical amount you may receive if you liquidated your account as of the reporting date.

• U.S. Treasury Securities:
  U.S. Treasury bills, notes and bonds are debt obligations of the U.S. government. When you buy a U.S. Treasury security, you are lending money to the U.S. Treasury for a specified period.
• Unrealized Gain/Loss of Securities:
  The Total Market Value of Securities Held minus the Total Adjusted Cost of Securities Held. If your securities have appreciated in value you will have an “unrealized” gain on your portfolio, indicated by a positive number; if not, you may have an “unrealized” loss, indicated by a negative number. This number only becomes a realized gain or loss if securities are sold, rather than allowing them to mature.

• Variable Rate Demand Note (VRDN):
  A municipal bond that pays a variable interest rate, and is always bought and sold at par. These instruments are issued with a letter of credit from a bank, and a specified remarketing agent (securities firm that is obligated to buy the bonds at any time) which helps to guarantee their liquidity (ability to be sold without price risk). These are not auction-rate securities and this specific type of debt never failed to get liquidity even during the worst parts of the financial crisis.

• Weighted Average Coupon:
  This number represents the average coupon of the individual securities in a portfolio weighted by market value.
• Weighted Average Maturity (years):
  This number, also known as “weighted average life,” is the average maturity of every bond in the portfolio weighted by market value.

There are no entries for the letter X.

• Yield Curve:
  A graphical representation of market yields on securities of different maturities at any given point in time (a snapshot). The vertical axis represents yields, while the horizontal axis represents time to maturity. The shape of the yield curve is defined by the relationship between short maturity bonds and long maturity bonds. If a bond maturing in 2 years has a yield of 2% and a 10 year bond yields 5%, than the curve would be upward sloping and considered steep.
• Yield on Cost (%):
  This number, also known as “book yield,” is the weighted average annual yield on all the bonds in your portfolio based on the purchase price. In other words, it does not change as market prices change. For each individual security the yield on cost is the yield at which you purchased the bond.
• Yield Spread:
  The difference between the yields of two bonds with differing credit ratings. Most often, a corporate bond with a certain amount of risk is compared to a similar maturity Treasury Bond. The spread will show the additional yield that could be earned from a bond which has a higher risk.
• Yield-to-Maturity:
  Yield that would be realized on a bond or other fixed income security if the bond is held until the maturity date, based on the purchase price. Yield-to-maturity is important for callable bonds that have both a yield-to-call and a yield-to-maturity.
• Yield-to-Worst:
  This is a yield quote that is most relevant to callable bonds, and is equal to the yield-on-cost to the worst case scenario. Thus if a callable bond is priced at a premium then the yield-to-worst is the yield received to the call date and assumes that the bond may be called. However, if the bond is priced at a discount then the assumption is that the bond will not be called, and yield-to-worst is the yield to final maturity. On a non-callable bond the yield-to-worst is equal to the yield-to maturity.

There are no entries for the letter Z.