Dailies
Transaction journals, similar to receipts, that mirror all trading and accounting activity that the custodial bank has performed on a given account.
Dates
There are some important dates that one must keep in mind when describing bond markets. It is important to note that date terms are not used consistently across markets. The following definitions allow for a consistent comparison and are used in the government bond outlines.
Announcement date (or Launch date): The day most of the terms of the bond are made public such as the issue size and maturity date.
Bad Days: Refers to days delayed in the receipt of redemption proceeds because the maturity date falls on a weekend or a holiday.
Call Date: The date on which a call option may be exercised.
Cutting Date: The day on which the coupon is physically "cut" from the bond.
Dated Date: The day interest starts accruing on a new issue or tap, frequently the issue date.
Ex-Dividend Date: The ex-dividend date determines who, from a trading perspective, receives the next coupon payment. Transactions settled on or after the ex-dividend date are deemed to be "ex-coupon" and therefore the buyer does note receive the next coupon. The seller must compensate the buyer with negative accrued interest. In some markets such as Germany, the trade date rather than settlement date determines custody.
Issue Date (or Payment Date or Primary Date): The day the issuer receives payment for a new issue of tap.
Market Day: A day when the domestic bond market is open.
Nominal Day: Any calendar day without regard to whether the bond market is open or not.
Nominal Payment Dates (or Coupon Dates or Coupon Due Dates): The dates on which coupons are scheduled to be paid. This day is used to calculate the accrued interest due to the holder. If the nominal payment date falls on a non-market day, the actual coupon payment is usually on the next market day.
Non-Market Day: a day when the domestic bond market is closed.
Record Date (or Cutting Date): The record date determines, from a custodial perspective, who actually receives the next coupon payment. This is usually the market day preceding the coupon due date ( or ex-dividend date). Ownership of the next coupon payment is determined by who holds the securities after close of business on the Record Date.
Secondary Date: The first day that the bond is available for trading in the secondary market.
Settlement Date: The day on which settlement is scheduled to take place. In the Eurobond market, this is referred to as "value date"
Subscription Period: The period during which investors place their bids for a new issue with a syndicate.
Value Date: The day the buyer begins to earn interest on his investment, often referred to as the interest bought/sold date. In many markets this is the same as the settlement date. Value dates may fall on non-market days.
Day Count Basis
Following is a list of conventions used to count the appropriate number of days between two dates in order to calculate accrued interest, yields and odd coupon amounts. For each rule, the numerator indicates the number of days between the dates and determines what happens if one of the dates falls on the 31st of a month. The denominator indicates how many days are considered in a year.
Numerator: The actual number of days between two dates.
Denominator: The actual number of days in the coupon period times the coupon frequency resulting in values ranging from 362 to 368 for semi-annual bonds.
Actual/360
Numerator: The actual number of days between two dates.
Denominator: 360
Actual/365
Numerator: the actual number of days between two dates.
Denominator: 365
Actual/365L
This rule is used for some Sterling Flat rate notes (FRNs).
Numerator: The actual number of days between two dates.
Denominator: If the next coupon payment date falls with-in a leap year use 366, otherwise use 365.
Day Order
An order to buy or sell securities which must be executed by the end of the trading day on which it was entered, otherwise it expires.
DD
Delayed Delivery
Dealer
A person or firm acting as a principal in buying and selling securities, usually compensated by the spread.
Dear
Expensive; perceived to be overvalued
DEB
Debenture
Debenture
An obligation secured by the general credit of the issuer rather than being backed by a specific lien on property.
Debt Service
A series of payments comprised of principal and interest that are calculated to extinguish a debt over a specified period of time. For level debt service these payments would be equal. Specifically, the periodic payment of principal and interest earned on mortgage loans.
Deep Discount Bond
A bond issued at a very low issue price. Deep discounts have low coupons offering an investor high principal return and low interest income. An extreme example is a zero coupon bond which pays all of its return in principal on the redemption date.
Default
Failure to pay principal or interest promptly when due. If caused by a minor omission which is remedied quickly, it is known as a technical default.
Deferred Purchase Note (DPN)
A new issue whose terms call for payment of a percentage (for example 25%) of the issue price on the normal closing date with the remaining percentage paid at a future date, usually six months to one year later. Failure to make the second payment results in forfeiture of the initial payment.
Deficiency Judgment
A court order to pay the balance owed on a loan if the proceeds from the sale of the security are insufficient to pay off the loan.
Deficiency Payment
On a FHLMC GMC issue, a principal amount guaranteed and paid to bondholders in excess of actual principal collections on the underlying mortgages. All deficiency payments on a given issue must be repaid to FHLMC bondholders may receive any payments of principal in excess of the guaranteed amounts.
Deficit
The amount by which expenditures exceed revenues.
Deflation
A progressive reduction in the price level, which would make real interest rates greater than nominal rates.
Delayed Delivery
1. An arrangement that may be made with the underwriters of a new issue that permits certain persons or institutions to pay for and take delivery of certain amounts of the new securities on specified dates after the original offering.
2. Trades arranged to settle after scheduled settlement date (i.e. Mortgage securities, see PSA for scheduled Settlement dates.)
Deliverable
Describes securities which meet standards of futures contracts as to quality, maturity, principal amount and coupon rate and which may be physically delivered to satisfy the contract.
Delivery
There are two methods of delivery of securities: Delivery versus payment and delivery versus receipt.
Delivery versus payment: Delivery of securities to a designated point (bank or broker) upon receipt of payment for the securities; can be in the form of a bank-wire or a check.
Delivery versus receipt: Delivery of securities with an exchange of a signed receipt for the securities.
Denomination
The minimum purchase amount, or multiples thereof, of a new issue when it is priced.
Depository Trust Company (DTC)
A central securities certificate depository through which members effect security deliveries among one another via computerized bookkeeping entries, thereby reducing the physical movement of securities.
Depression
A severe recession.
Derivative
A security which derives its value from movements in an underlying security.
Designation
The portion of an order allocated to an underwriter by an investor through the manager of the offering.
Difference Check
A check issued when the same securities have been both bought and sold for delivery on the same date; the check is for an amount which equals the difference between the purchase and sale prices.
Direct Hedge
A futures purchase or sale intended to reduce price-level risk for a deliverable financial instrument.
Directive
A letter officially directing the custodial bank to release funds for a buy to an account, or to accept funds for a sale.
Dirty Price
The price of a bond which includes accrued interest (see Clean Price).
Dis-intermediation
The withdrawal of interest-bearing deposits for reinvestment that tends to occur when interest rates on Treasury bills and other market instruments rise significantly above those paid on funds deposits.
Discount
The difference between the cost price of a security and its value at maturity when quoted at lower than face value. A security selling below original offering price shortly after sale is also considered at be at a discount.
Discount Basis
A method for quoting non-coupon securities (which always sell at a discount) in which the discount from par is annualized based on a 360-day year.
Discount Bonds
Those bonds selling below par.
Discount Rate
The interest rate, fixed by the Federal Reserve, which must be paid by a financial institution when it borrows from its regional Federal Reserve Bank.
Discretionary Consumer Spending
Consists of purchases deemed postponable rather that routine- I.e., "luxuries" vs. "necessities."
Disinflation
A declining rate of inflation. Analysts are predicting modest disinflation in the U.S. in 2002.
Dividend
A cash or other distribution to preferred or common stockholders.
Dividend Receivable
When a stock goes ex-dividend, we show the dividend as receivable. It is automatically posted to cash on the dividend payment date.
Dividend Rate
In the case of bonds, it is the coupon rate on the bonds. In the case of stocks, it is the current annual dividend amount per share expressed in dollars. In the case of cash equivalents, it is the annualized yield.
Dividend Yield
The percentage obtained by dividing the dividend by the market price of a stock.
DJIA
Dow Jones Industrial Average
DK
Don't know; a street term used whenever parties do not agree on a transaction.
Dollar Repo
A method of borrowing versus securities owned which is similar to a repurchase agreement but different in the following respects:
1. Unlike an ordinary repo, in which the securities are used to collateralize a loan, the securities are actually sold and subsequently repurchased in the dollar repo. This means that the seller loses possession of the securities during the dollar repo period.
2. The sale and repurchase prices are agreed upon at the time of the dollar repo, and both confirms are printed simultaneously. In each transaction, the buyer pays the seller accrued interest, and the buyer keeps any coupon income.
3. The securities repurchased need not be the same physical securities sold - an equal par amount of the same issue may be acceptable.
Also known as Dollar Repurchase Agreement or Dollar Price Repo.
Done
A binding term used to signify the completion of a transaction.
Downgrade
1. The changing of a rating by a rating agency to a lower (less credit worthy) rating
2. The sale of one block of bonds and the purchase of another block with a lower rating.
Draft Attached
The delivery of securities to another city through a corresponding bank. Securities are financed at the current rate of interest until paid for in the city of delivery.
Drop Lock
A provision on certain floating rate securities assuring that, should rates drop on the instrument to which the floater is tied, the coupon will become fixed ("locked") until maturity.
DTC
Depository Trust Company
Due Bill
An assignment or other instrument employed for the purpose of evidencing the transfer of title to any dividend, interest or rights pertaining to securities contracted for, or evidencing the obligation of a seller to deliver such dividend, interest or rights to a subsequent owner.
Due Bill Check
A due bill in the form of a check payable on the date of payment of a cash dividend which, prior to such date, shall be considered as a due bill for the amount of such dividend.
Due from Broker
This aggregates items which have been sold, including short sales (forward pass-through sales). They are removed from the inventory as of the Trade Date, but posting to cash does not occur until Settlement Date.
Dumbbell
Refers to a fixed income portfolio strategy in which assets are concentrated only in the very short or very long maturity issues.
Duration
A measure of average maturity that incorporates a bond's yield, coupon, final maturity and call features into one measurement. Duration measures the sensitivity of a bond's, or portfolio's, price to changes in interest rates.
A two year duration portfolio will rise (fall) 2% if rates fall (rise) 1%.
A five year duration portfolio will rise or fall 5%
If the outlook on bonds is "bullish", i.e., we expect the interest rates to fall, the duration is then extended.
If the outlook on bonds is "bearish", i.e., we expect the interest rates to rise, the duration is then reduced.
Bear Duration: a proprietary measurement developed by PIMCO that estimates the price change in a security or portfolio in the event of a rapid, 50 basis-point rise in interest rates over the entire yield curve. This tool measures the effect that mortgages and callable bonds will have on the lengthening (or extending) of the portfolio’s duration.
Bull Duration: a proprietary measurement developed by PIMCO that estimates the price change in a security or portfolio in the event of a rapid, 50 basis-point drop in interest rates over the entire yield curve. This tool measures the effect that mortgages and callable bonds will have on shortening (or contracting) the portfolio’s duration.
Curve Duration: a measurement of a portfolio’s price sensitivity to changes in the shape of the yield curve (i.e., steepening or flattening). A portfolio’s curve duration is considered positive if it has more exposure to the 2- to 10-year part of the curve. A portfolio with positive curve duration will perform well as the yield curve steepens, but will perform poorly as the yield curve flattens. A portfolio with negative curve duration has greater exposure to the 10- to 30-year portion of the curve. It will be a poor performer as the yield curve steepens and a strong performer as the yield curve flattens.
Effective Duration: the standard measurement that estimates the price change in a security or a portfolio when the interest rates movements are fairly small.
Spread Duration: a measurement that estimates the price sensitivity of a specific sector or asset class to a 100 basis-point movement (either widening or narrowing) in its spread relative to Treasuries.
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Corporate spread duration: applies primarily to the widening or narrowing of the spread over LIBOR in floating-rate notes. The spread duration for fixed-rate corporates is the same as standard duration.
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Mortgage spread duration: applies to the widening or narrowing of the option-adjusted spread (OAS) that takes into account the prepayment risk.
Total Curve Duration: a measurement that shows a portfolio’s price sensitivity to changes in the shape of the yield curve relative to its benchmark’s sensitivity to those same changes. [See Curve Duration above for characteristics of positive vs. negative portfolios].
Dutch Auction
A competitive bidding technique in which the lowest price necessary to sell the entire amount of securities offered becomes the price at which all securities are sold.