Interest that has accumulated since the last coupon payment date, but has not yet been paid. Bonds accrue interest daily during coupon periods and then pay the interest (or the coupon) on the last day of the interest period.
Is the Bank Bill Swap (BBSW) Benchmark Rate published in accordance with Australian Financial Markets Association conventions. An example is the 3 Month BBSW, which is an interest rate payable in respect of borrowings amongst banks for loans with a 3 month tenor.
A basis point equals one hundredth of a percentage point. The relationship between percentage changes and the basis points can be summarized as: 1% change = 100 basis points, and 0.01% = 1 basis point. So, a bond whose yield increases from 5% to 5.5% is said to increase by 50 basis points; or interest rates that have risen 1% are said to have increased by 100 basis points.
The bid price is the price offered by a buyer. The ask (or offer) price is the price offered by the seller. The bid/offer spread is the amount by which the ask price exceeds the bid. It is the difference in price between the highest price that a buyer is willing to pay for the bond and the lowest price for which a seller is willing to sell it.
The price of a bond not including any accrued interest. Immediately following each coupon payment, the clean price will equal the Market (dirty) price. See Market Price.
The interest rate the issuer has agreed to pay on the Face Value of a bond.
Is the interest payments as a percentage of the Market price of a bond, it is a short term metric in respect of bonds, as it does not take into account the capital gain or loss that may be suffered on bonds purchased in the secondary and which are held to maturity.
In relation to a bond, it is the minimum denomination of that bond.
A Floating Rate Note, where the interest payable on the bond is determined by a Reference Rate plus the Interest Margin.
The fixed spread or premium above the Reference Rate that is payable on the Face Value of an FRN. The Interest Margin is set at the time of the pricing of the bond.
The price of a bond, including the interest accrued on the next coupon payment; sometimes referred to as the ‘dirty’ price.
Is the fixed date on which a bond is scheduled to be redeemed by the issuer. More generally it is the date on which a fixed-term interest-bearing investment is scheduled to be redeemed.
Another term for Face Value or PAR.
The Face Value of a bond at issue date.
Refers to the frequency of coupon payments by the Bond issuer. Typically semi-annual.
Premium and discount bonds:
If a bond is trading at a higher price than its face value, it is called a premium bond. If a bond is trading at a lower price than its face value, it is referred to as a discount bond.
Is the variable component of the interest rate payable on an FRN. In Australia a common Reference Rate is 3 month BBSW.
Is estimate of average future Reference Rates based on various tenors.
Is the measure of estimated average margin above the Reference Rate over the life of an FRN, based on the relevant Swap Rate applicable to the time period to maturity of an FRN. The Trading Margin is generally used by the wholesale market to price FRNs.
Yield to Maturity (YTM):
The return an investor will receive if it buys a bond and holds the bond to maturity, based upon the purchase price and assuming that the coupons can be reinvested at the same rate.