Glossary: FI Module 01 — Instrument Features
| Term | Definition |
|---|---|
| Bond (fixed-income security) | A debt instrument in which the issuer promises to make specified payments to the holder on specified dates |
| Issuer | The entity that borrows funds by selling bonds (governments, corporations, supranationals) |
| Bondholder (creditor) | The investor who purchases and holds the bond |
| Indenture (trust deed) | The legal contract between issuer and bondholders specifying all terms and conditions |
| Trustee | A third party (usually a bank) that monitors the issuer’s compliance with the indenture |
| Par value (face value) | The principal amount repaid at maturity; typically $1,000 per bond |
| Coupon rate | The annual interest rate paid on the bond’s par value |
| Coupon payment | The periodic interest payment: |
| Maturity date | The date on which the issuer repays the par value |
| Tenor | The remaining time to maturity |
| Seniority | The priority of a bondholder’s claim relative to other creditors in the event of default |
| Secured bond | A bond backed by specific collateral (assets pledged) |
| Unsecured bond (debenture) | A bond backed only by the issuer’s general creditworthiness |
| Callable bond | A bond that the issuer can redeem before maturity at a specified call price |
| Putable bond | A bond that the bondholder can sell back to the issuer before maturity |
| Convertible bond | A bond that the holder can exchange for a specified number of the issuer’s common shares |
| Current yield | Annual coupon divided by the bond’s current market price |
| Yield to maturity (YTM) | The IRR assuming the bond is held to maturity and all coupons reinvested at the YTM |
| Covenant | A clause in the indenture that restricts (negative) or requires (affirmative) certain issuer actions |
| Negative pledge clause | A covenant preventing the issuer from pledging assets to other creditors |
See also: Bond Features