Bonds summary

• The fixed interest rate paid by the bond issuer
• Expressed as a percentage of the bond's face value
• Determines the periodic interest payments
• Example: A 5% coupon on a $1,000 bond pays $50 annually

• The total return anticipated if a bond is held until maturity
• Accounts for coupon payments, current price, face value, and time to maturity
• The internal rate of return (IRR) that equates future cash flows to current price
• The most comprehensive measure of a bond's return

• Annual coupon payment divided by the current market price
• Simpler than YTM but only considers coupon income, not capital gains/losses

• Similar to YTM but assumes the bond will be called at the earliest call date
• Important for evaluating callable bonds trading at a premium
• Investors should consider the lower of YTM and YTC as the "yield to worst"

• Implied future interest rates derived from the current yield curve
• Represent market expectations of future interest rate movements
• Used for forecasting and derivative pricing

• The interest rate adjusted for inflation
• Nominal rate minus expected inflation rate
• Measured by yields on Treasury Inflation-Protected Securities (TIPS)

• Central bank interest rates that influence the entire market
• In the US, the Federal Funds Rate set by the Federal Reserve
• Changes in policy rates cascade through the entire fixed-income market

• Treasury yields that serve as reference points for other fixed-income securities
• Key benchmarks include 2-year, 5-year, 10-year, and 30-year Treasury yields
• Credit spreads are measured against these benchmark rates

• The additional yield over comparable Treasury securities
• Compensates investors for credit risk
• Widens during market stress and narrows during economic stability

• The date when the bond is first issued and begins to accrue interest
• Marks the official start of the bond's life
• The point from which the maturity period is measured

• The trade date is when the transaction is agreed upon (price, quantity, etc.)
• When the order is matched and executed in the market

• The date when the bond transaction is completed
• The buyer pays the seller and officially takes ownership
• Generally 1-3 business days after the trade date (T+1, T+2, or T+3 depending on the market)
• The dirty price (including accrued interest) is calculated based on this date

• The dates when interest payments are distributed to bondholders
• Typically semi-annual or annual, but can be quarterly or monthly
• Fixed schedule throughout the life of the bond

• The first date when the bond trades without the right to the next coupon payment
• Typically 1-3 business days before the record date
• If you buy a bond on or after this date, you won't receive the upcoming interest payment
• The bond's price typically drops by approximately the coupon amount on this date

• The date when the issuer checks its registry to determine who receives the upcoming coupon payment
• Only investors listed as owners on this date will receive the payment
• Usually 1-2 days after the ex-date

• The actual date when coupon payments are distributed to eligible bondholders
• Typically a few business days after the record date

• For callable bonds, the date(s) when the issuer can redeem the bond before maturity
• Multiple call dates may exist with different call prices
• The first call date is when the bond becomes callable for the first time

• For putable bonds, the date(s) when the bondholder can sell the bond back to the issuer
• Gives investors protection against rising interest rates

• The date when the bond expires and the principal amount is repaid
• Marks the end of the bond's life
• Final interest payment is typically made on this date as well

• The principal amount the issuer promises to pay at maturity
• Typically $1,000 per bond for corporate bonds, $100 for Treasury bonds
• Serves as the reference point for calculating coupon payments
• Bonds can trade above par (premium), at par, or below par (discount)

• The quoted price in the market, excluding accrued interest
• Used for bond price quotes on trading platforms and financial media
• Makes it easier to compare bonds with different coupon cycles
• Example: When you see a bond quoted at "98.5," it means $985 per $1,000 face value

• The actual amount the buyer pays: Clean Price + Accrued Interest
• Represents the true economic value of the bond
• Changes daily as interest accrues between coupon payments
• Used for actual settlement of trades

• Interest earned since the last coupon payment but not yet paid
• Calculated daily based on the day count convention of the bond
• Paid by the buyer to the seller when purchasing a bond between coupon dates
• Resets to zero on coupon payment dates

The current trading price of the bond in the secondary market. Determined by supply and demand, influenced by:

• Prevailing interest rates
• Credit quality of the issuer
• Time to maturity
• Market liquidity

• The price at which a new bond is initially offered to investors
• Can be at par, at a premium, or at a discount
• Determined during the bond's underwriting process

• The amount paid to the bondholder when the bond matures or is called
• Usually equal to the par value, but can differ in certain structures

• For callable bonds, the price the issuer will pay to redeem the bond early
• Often set at a premium to par value (e.g., 102% of face value)
• May decline over time according to a predetermined schedule

Understanding these different concepts is crucial for bond investors to accurately value securities, compare investment opportunities, and calculate potential returns.