Irredeemable bonds

Bonds with a fixed maturity but not subject to prior redemption; bonds that cannot be called for redemption by the issuer (payer or obligor) before maturity. They should not be confused with perpetual bonds or intermediate bonds. UK Irredeemable (undated) bonds have no final maturity date. They are callable by the government at any time within 3 months. As their coupons range between 2.5% and 4% they are unlikely to be called. War loan, issued by the UK government during the First World War, is the best known undated gilt.

Similar financial terms

Short-term bonds
Bonds with a maturity of between one and five years.

Medium-term or intermediate-term bonds
Bonds with a maturity of between five and twelve years.

Long-term bonds
Bonds with a maturity of more than 12 years.

Zero-coupon bonds
The holder of a zero-coupon bond realizes interest by buying the bond at a discount to its principal value. These bonds made their debut in the U.S. bond market in the early 1980s.

Deferred-coupon bonds
Bonds that let the issuer avoid using cash to make interest payments for a specified number of years. There are three types of deferred-coupon structures: (a) deferred-interest bonds, (b) step-up bonds and (c) payment-in-kind bonds.

Call feature on bonds
A call feature grants the issue the right to retire the debt, fully or partially, before the scheduled maturity date. Inclusion of a call feature benefits bond issuers by allowing them to replace an old bond issue with a lower-interest cost issue if interest rates in the market fall.

Put provision on bonds
A put provision grants the bondholder the right to sell the issue back to the issuer at par value on designated dates. Here the advantage to the investor is that if interest rates rise after the issue date, thereby reducing a bond’s price, the investor can force the issuer to redeem the bond at par value.

Interest-rate risk on bonds
The price of a typical bond will change in the opposite direction from a change in interest rates. As interest rates rise, the price of a bond will fall; as interest rates fall, the price of a bond will rise. The actual degree of sensitivity of a bond’s price to changes in market interest rates depends on various characteristics of the issue maturity, coupon and special provisions.

Reinvestment risk on bonds
Usually, when the yield of a bond is calculated, you assume that the coupons received before maturity are reinvested. The additional income from such reinvestment is sometimes referred to as interest-on-interest which depends on the prevailing interest-rate levels at the time of reinvestment. Volatility in the reinvestment rate of a given strategy because of changes in market interest rates is called reinvestment risk. This risk is that the interest rate at which interim cash flows can be reinve ...

Call risk on bonds
Many bonds include a call feature that allows the issuer to redeem or “call” all or part of the issue before the maturity date. The issuer usually retains this right in order to have flexibility to refinance the bond in the future if the market interest rate drops below the coupon rate. This implies three risks from the investor: (a) The cash flow pattern becomes uncertain, (b) The investor becomes exposed to reinvestment risk because the issuer will call the bond when interest rates drop, and ( ...

Default risk on bonds
Issuers that potentially run into cash flow problems, simultaneously attaches default risk to their bonds if there is uncertainty whether they can afford to pay coupons and principals. Bonds with default risk trade in the market at a price that is lower than comparable U.S. Treasury securities, which are considered free of default risk. Default risk is gauged by quality ratings assigned by recognised rating companies such as Moody’s Investor Service, Standard & Poor’s Corporation, Morningstar an ...

Junk bonds
Bonds that trade below investment grade set by recognised rating companies such as Moody’s Investor Service (Baa3), Standard & Poor’s Corporation (BBB), Morningstar and Fitch IBCA.

Inflation risk on bonds
If investors purchase a bond on which they can realize a coupon rate of 5% but the rate of inflation is 6%, the purchasing power of the cash flow actually has declined. Inflation risk arises because of the variation in the value of cash flows from a security due to inflation, as measured in terms of purchasing power.

Exchange-rate risk on bonds
A non-domestic-currency nominated bond has unknown domestic currency cash flows. The domestic currency cash flows are dependent on the exchange rate at the time the payments are received. For example, suppose that a German investor purchases a bond whose payments are in British pounds (GBP). If pounds depreciate relative to euros (EUR), fewer euros will be received and vice versa. This risk is also referred to currency risk.

Liquidity risk on bonds
The primary measure of liquidity is the size of the bid-ask spread. Liquidity risk depends on the ease with which an issue can be sold at or near its value. It follows that the wider the dealer spread, the more liquidity risk.

Brady bonds
Brady bonds are issued by emerging countries under a debt-reduction plan named after former U.S. Secretary of the Treasury Nicholas Brady. Brady bonds were set up in association with the IMF and World Bank to sponsor the restructuring of outstanding sovereign loans and interest arrears into liquid debt instruments.

Conventional bonds
The conventional bonds form the largest part of the UK gilt market. 73% of bonds oustanding are in this form. COnventional bonds have a fixed coupon and a bullet (i.e. a fixed) maturity. Current coupons range from 2% to 13.5%. At the moment (2004), the longest outstanding maturity is 2036.

Yankee bonds
Yankee bonds are issued by foreign governments and corporations, are generally dollar denominated, trade in the U.S., and must register with the Security and Exchange Commission. Issuers in the Yankee bond market are predominately highly-rated sovereign, or sovereign guaranteed issuers, although foreign corporations and financial institutions have increased issuance of Yankee bonds over the last decade.

Issuance in the Yankee bond market is dependent on U.S. interest rates, and the valu ...

Matador bonds
Foreign bonds issued in Spain.

Rembrandt bonds
Foreign bonds issued in Netherlands.

Samurai bonds
Foreign bonds issued in Japan.

Bulldog bonds
Foreign bonds issued in the United Kingdom.

Shogun bonds
Shogun bonds consist of foreign-currency bonds issued in Tokyo in currencies other that Japanese yen (JPY).

Yankee ECU bonds
Yankee ECU bonds refers to foreign-currency bonds issued in New York or Chicago in currencies other that US dollar.

Term bonds
Often referred to as bullet-maturity bonds or simply bullet bonds, bonds whose principal is payable at maturity.

Short bonds
Bonds with short current maturities.

Serial bonds
Corporate bonds arranged so that specified principal amounts become due on specified dates.

Long bonds
Bonds with a long current maturity. The "long bond" is the 30-year U.S. government bond.

Collateral trust bonds
A bond in which the issuer (often a holding company) grants investors a lien on stocks, notes, bonds, or other financial asset as security.

Convertible bonds
Bonds that can be converted into common stock at the option of the holder.

Corporate bonds
Debt obligations issued by corporations.

Cushion bonds
High-coupon bonds that sell at only at a moderate premium because they are callable at a price below that at which a comparable non-callable bond would sell. Cushion bonds offer considerable downside protection in a falling market.

General Obligation Bonds
Securities issued by municipalities. The source of revenue to pay the interest and principal is taxes. These securities are also known as full faith and credit issues because they depend on the municipality's capacity to tax. These issues are often considered to be more stable than Revenue Bonds.

Strip Bonds
The capital portion of a bond from which the coupons have been stripped. The holder of the strip bond is entitled to its par value at maturity, but not the annual interest payments.

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Performance attribution analysis

The decomposition of a money manager's performance results to explain the reasons why those results were achieved. This analysis seeks to answer the following questions: (a) What were the major sources of added value? (b) Was short-term factor timing statistically significant? (c) Was market timing statistically significant? And (d), Was security selection statistically significant?

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