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Bond Glossary

Advance refunding

A financing structure under which new bonds are issued to repay an outstanding bond issue prior to its first call date. Generally, the proceeds of the new issue are invested in government securities, which are placed in escrow. The interest and principal repayments on these securities are then used to repay the old issue, usually on the first call date.


The price at which a buyer will purchase a security.

Bearer security

A security that has no identification as to owner. It is presumed to be owned, therefore, by the bearer or the person who holds it. Bearer securities are freely and easily negotiable, since ownership can be quickly transferred from seller to buyer.

Bond funds

Registered investment companies whose assets are invested in diversified portfolios of bonds.

Callable bonds

Bonds which are redeemable by the issuer prior to the specified maturity date at a specified price at or above par.

Call premium

A dollar amount, usually stated as a percentage of the principal amount called, paid as a “penalty” or a “premium” for the exercise of a call provision.


This part of a bond denotes the amount of interest due, and on what date and where the payment is to be made. Bearer coupons are presented to the issuer’s designated paying agent or deposited in a commercial bank for collection. In the case of registered coupons (see “Registered bond”), the interest payment is mailed directly to the registered holder. Coupons are generally payable semiannually.

Current refunding

A financing structure under which the old bonds are called or mature within 90 days of the issuance of the new refunding bonds.

Current yield

The ratio of interest to the actual market price of the bond stated as a percentage. For example, a $1,000 bond that pays $80 per year in interest would have a current yield of 8%.


The Committee on Uniform Security Identification Procedures, which was established under the auspices of the American Bankers Association to develop a uniform method of identifying municipal, U.S. government, and corporate securities.

Dated date (or issue date)

The date of a bond issue from which the bondholder is entitled to receive interest, even though the bonds may actually be delivered at some other date. Default. Failure to pay principal or interest promptly when due.


The amount by which the purchase price of a security is less than the principal amount or par value.

Double exemption

Securities that are exempt from state as well as federal income taxes are said to have double exemption.

Extraordinary redemption

This is different from optional redemption or mandatory redemption in that it occurs under an unusual circumstance such as destruction of the facility financed.

Face amount

The par value (i.e., principal or maturity value) of a security appearing on the face of the instrument.

Fixed-rate bond

A long-term bond with an interest rate fixed to maturity.

Floating-rate bond

A long-term bond for which the interest rate is adjusted periodically according to a predetermined formula, based upon specific market indicators.


Compensation paid or to be paid for the use of money. Interest is generally expressed as an annual percentage rate.


A state, political subdivision, agency or authority which borrows money through the sale of bonds or notes.

Legal opinion

An opinion concerning the validity of a securities issue with respect to statutory authority, constitutionality, procedural conformity and usually the exemption of interest from federal income taxes. The legal opinion is usually rendered by a law firm recognized as specializing in public borrowings, often referred to as “bond counsel.”

Limited tax bond

A bond secured by a pledge of a tax or category of taxes limited as to rate or amount.


A measure of the ease with which a security can be sold in the secondary market.


The date when the principal amount of a security becomes due and payable.

Moral obligation bond

A revenue bond which, in addition to its primary source of security, possesses a structure whereby a state pledges to make up shortfalls in a debt service reserve fund, subject to legislative appropriation. There is no legal obligation for the state to make such a payment, but market participants recognize that failure to honor the “moral” pledge would have negative consequences for the state’s own creditworthiness.

Non-callable bond

A bond that cannot be called either for redemption by or at the option of the issuer before its specified maturity date.


Short-term promises to pay specified amounts of money, secured by specified sources of future revenues, such as taxes, federal and state aid payments and bond proceeds.

Offering price

The price at which members of an underwriting syndicate for a new issue will offer securities to investors.

Official statement

Document prepared by the issuer that gives in detail security and financial information about the issue.

Optional redemption

A right to retire all or part of an issue prior to the stated maturity during a specified period of years, often at a premium. The right can be exercised at the option of the issuer.

Original issue discount

A bond, issued at a dollar price less than par which qualifies for special treatment under federal tax law. Under that law, the difference between the issue price and par is treated as tax-exempt income rather than a capital gain, if the bonds are held to maturity.

Par value

The principal amount of a bond or note due at maturity.

Paying agent

Place where principal and interest are payable. Usually a designated bank or the office of the treasurer of the issuer.


The amount by which the price of a security exceeds its principal amount.


The face amount of a bond, exclusive of accrued interest and payable at maturity.


Designations used by rating services designed to give relative indications of credit quality.

Registered bond

A bond whose owner is registered with the issuer or its agent either as to both principal and interest or as to principal only. Transfer of ownership can only be accomplished when the securities are properly endorsed by the registered owner.

Special tax bond

A bond secured by a special tax, such as a gasoline tax.


Simply, the sale of a block of bonds and the purchase of another block of similar market value. Swaps may be made to achieve many goals, including establishing a tax loss, upgrading credit quality, extending or shortening maturity, etc.

Trade date

The date when a bond transaction is executed.


A bank designated by the issuer as the custodian of funds and official representative of bondholders. Trustees are appointed to ensure compliance with the trust indenture and represent bondholders to enforce their contract with the issuers.

Unit investment trust (municipal)

A fixed portfolio of tax-exempt bonds sold in fractional undivided interests

Unlimited tax bond

A bond secured by the pledge of taxes that are not limited by rate or amount.

Yield to call

A yield on a security calculated by assuming that interest payments will be paid until the call date, when the security will be redeemed at the call price.

Yield to maturity

A yield concept designed to give the investor the average annual yield on a security. It is based on the assumption that the security is held to maturity and that all interest received over the life of the security can be reinvested at the yield to maturity.

Zero-coupon bond

A bond for which no periodic interest payments are made. The investor receives one payment – at maturity. The maturity value an investor receives is equal to the principal invested plus interest earned compounded semiannually at the original interest rate to maturity.

Source: The Bond Market Association

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