Similar financial terms
Relative valueThe attractiveness measured in terms of risk, liquidity, and return of one instrument relative to another, or for a given instrument, of one maturity relative to another.
Relative strength
A stock's price movement over the past year as compared to a market index (the S&P 500). Value below 1.0 means the stock shows relative weakness in price movement (underperformed the market); a value above 1.0 means the stock shows relative strength over the 1-year period. Equation for Relative Strength: [current stock price/year-ago stock price] [current S&P 500/year-ago S&P 500]
Relative purchasing power parity (RPPP)
Idea that the rate of change in the price level of commodities in one country relative to the price level in another determines the rate of change of the exchange rate between the two countries' currencies.
Yield to maturity
The total yield on a bond obtained by equating the bond's current market value to the discounted cash flows promised by the bond. Also referred to as actuarial yield or just yield.
Yield curve
The yield curve, which plots the term structure, shows the relationship between yield (interest rate) and maturity for a set of similar securities. Typically, different yield curves are drawn for zero-coupon bonds (zero-coupon yield curve) and for coupon bonds quoted at par (par yield curve).
Yield
In general, the yield is the return on an investor's capital investment. For bonds it is the coupon rate of interest divided by the purchase price, called current yield. Also, the rate of return on a bond, taking into account the total of annual interest payments, the purchase price, the redemption value, and the amount of time remaining until maturity.
Dividend yield
A stock's daily percentage summary of yield, calculated by dividing annual dividend per share by the day's closing stock price.
Yield to call
The percentage rate of a bond or note, if you were to buy and hold the security until the call date. This yield is valid only if the security is called prior to maturity. Generally bonds are callable over several years and normally are called at a slight premium. The calculation of yield to call is based on the coupon rate, length of time to the call and the market price.
Yield spread strategies
Strategies that involve positioning a portfolio to capitalize on expected changes inyield spreads between sectors of the bond market.
Yield ratio
The quotient of two bond yields.
Yield curve strategies
Positioning a portfolio to capitalize on expected changes in the shape of the Treasury yield curve.
Yield curve option-pricing models
Models that can incorporate different volatility assumptions along the yield curve, such as the Black-Derman-Toy model. Also called arbitrage-free option-pricing models.
Weighted average portfolio yield
The weighted average of the yield of all the bonds in a portfolio.
Annual percentage yield (APY)
The effective, or true, annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the affect of compounding. The APY is calculated by taking one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate has an APY of 12.68% (1.01^12).
Steepening of the yield curve
A change in the yield curve where the spread between the yield on a long-term and short-term Treasury has increased.
Riding the yield curve
Buying long-term bonds in anticipation of capital gains as yields fall with the declining maturity of the bonds.
Required yield
Generally referring to bonds, the yield required by the marketplace to match available returns for financial instruments with comparable risk.
Reoffering yield
In a purchase and sale, the yield to maturity at which the underwriter offers to sell the bonds to investors.
Realized compound yield
Yield assuming that coupon payments are invested at the going market interest rate at the time of their receipt and rolled over until the bond matures.
Pure yield pickup swap
Moving to higher yield bonds.
Parallel shift in the yield curve
A shift in the yield curve in which the change in the yield on all maturities is the same number of basis points. In other words, if the 3 month T-bill increases 100 basis points (one percent), then the 6 month, 1 year, 5 year, 10 year, 20 year, and 30 year rates increase by 100 basis points as well.
Non-parallel shift in the yield curve
A shift in the yield curve in which yields do not change by the same number of basis points for every maturity.
Liquid yield option note (LYON)
Zero-coupon, callable, putable, convertible bond invented by Merrill Lynch & Co.
Bond equivalent yield
Bond yield calculated on an annual percentage rate method. Differs from annual effective yield.
Bond-equivalent yield
The annualized yield to maturity computed by doubling the semiannual yield.
Capital gains yield
The price change portion of a stock's return.
Convenience yield
The extra advantage that firms derive from holding the commodity rather than the future.
Coupon equivalent yield
True interest cost expressed on the basis of a 365-day year.
Current yield
For bonds or notes, the coupon rate divided by the market price of the bond.
Yield to worst
The bond yield computed by using the lower of either the yield to maturity or the yield to call on every possible call date.
Yield burning
A municipal bond financing method. Underwriters in advance refundings add large markups on US Treasury bonds bought and held in escrow to compensate investors while waiting for repayment of old bonds after issuance of the new bonds. Since bond prices and yields move in opposite directions, when the bonds are marked up, they "burn down" the yield, which may violate federal tax rules and diminishes tax revenues.
Spread
A spread is either (a) the gap between bid and ask prices of a stock or other security, (b) The simultaneous purchase and sale of separate futures or options contracts for the same commodity for delivery in different months (also known as a straddle), (c) the difference between the price at which an underwriter buys an issue from a firm and the price at which the underwriter sells it to the public or (b) the price an issuer pays above a benchmark fixed-income yield to borrow money.
Spread transaction
A position in two or more options of the same type.
Spread option
AN option where the payoff depends on the difference between two market variables.
Horizontal spread
The simultaneous purchase and sale of two options that differ only in their expiration dates.
Vertical spread
Simultaneous purchase and sale of two options that differ only in their exercise price.
TED spread
Difference between U.S. Treasury bill rate and eurodollar rate; used by some traders as a measure of investor/trader anxiety.
Spreadsheet
A computer program that organizes numerical data into rows and columns on a terminal screen, for calculating and making adjustments based on new data.
Spread strategy
Spreading is a strategy that involves a position in one or more options so that the cost of buying an option is funded entirely or in part by selling another option in the same underlying.
Spread income
Also called margin income, the difference between income and cost. For a depository institution, the difference between the assets it invests in (loans and securities) and the cost of its funds (deposits and other sources).
Quality spread
Also called credit spread, the spread between Treasury securities and non-Treasury securities that are identical in all respects except for quality rating. For instance, the difference between yields on Treasuries and those on single A-rated industrial bonds.
Option-adjusted spread (OAS)
(a) The spread over an issuer's spot rate curve, developed as a measure of the yield spread that can be used to convert dollar differences between theoretical value and market price. (b) The cost of the implied call embedded in a MBS, defined as additional basis-yield spread. When added to the base yield spread of an MBS without an operative call produces the option-adjusted spread.
Maturity spread
The spread between any two maturity sectors of the bond market.
Bid-asked spread
The difference between the bid and asked prices.
Bull spread
A spread strategy in which an investor buys an out-of-the-money put option, financing it by selling an out-of-the money call option on the same underlying.
Calendar spread
Applies to derivative products. A strategy in which there is a simultaneous purchase and sale of options of the same class at the same strike prices, but with different expiration date.
Ted Spread
The difference between the price of the three-month U.S. Treasury bill futures contract and the price of the three-month Eurodollar time deposit futures contract with the same expiration month.
Crush Spread
In the soybean futures market, the simultaneous purchase of soybean futures and the sale of soybean meal and soybean oil futures to establish a processing margin.
