A floater is a bond that has a variable interest rate. The interest rate is tied to an underlying benchmark rate, such as the prime rate or LIBOR. The interest payments on a floater increase when the benchmark rate increases, and decrease when the benchmark rate decreases. An inverse floater is a bond with a … Read more
A Callable Certificate of Deposit (CD) is a type of fixed income security that gives the issuer the right to redeem the security prior to its maturity date. This type of security is typically used by issuers who want to be able to take advantage of lower interest rates in the future. The main advantage … Read more
A paper dealer is an individual or firm that buys and sells paper securities, such as bonds and treasury bills. Paper dealers typically work with large financial institutions and investors to provide liquidity in the secondary market. Paper dealers typically quote prices for securities that are not actively traded, and they are often willing to … Read more
The realized yield is the actual return on an investment, after taking into account all of the cash flows associated with the investment. This includes any interest payments, dividends, and capital gains or losses. The realized yield can be different from the stated yield, which is the advertised rate of return on an investment. Will … Read more
A competitive tender is a type of auction in which bids are submitted in order to purchase a security, typically a government bond. The highest bidder wins the auction and is awarded the security. The other bidders who submitted lower bids do not win the auction. Competitive tenders are often used by central banks in … Read more
A Variable Coupon Renewable Note (VCR) is a type of financial instrument that pays periodic interest payments that are variable in nature. The payments are generally based on a reference interest rate, such as the London Interbank Offered Rate (LIBOR). VCRs are typically issued with maturities of one year or less, and are renewable at … Read more
A fixed interest security is a debt instrument that pays a periodic interest payment, known as a coupon, and principal repayment at maturity. The coupon payments are usually fixed, and the principal repayment is usually fixed as well. Fixed interest securities are typically issued by governments or corporations. What is a fixed income trading? When … Read more
The reinvestment rate is the interest rate earned on newly invested principal in a fixed income security. The reinvestment rate is important to fixed income investors because it directly impacts the return on their investment. For example, let’s say an investor buys a $1,000 bond with a 5% coupon and a 5% yield to maturity. … Read more
