Glossary: FI Module 03 — Issuance and Trading
| Term | Definition |
|---|---|
| Primary market | The market where new bond issues are first sold to investors |
| Secondary market | The market where previously issued bonds are traded among investors |
| Investment grade | Bonds rated Baa3/BBB- or higher by Moody’s/S&P; considered lower credit risk |
| High yield (speculative grade) | Bonds rated Ba1/BB+ or lower; also called junk bonds |
| Fallen angel | A bond originally rated investment grade that has been downgraded to high yield |
| Rising star | A bond upgraded from high-yield to investment-grade status |
| Underwritten offering | An investment bank buys the entire issue from the issuer and resells to investors (bears unsold inventory risk) |
| Best-efforts offering | The investment bank acts as agent, selling as much as possible without guaranteeing the full amount |
| Shelf registration | A regulatory provision allowing an issuer to register securities in advance and sell them in tranches over time |
| Auction | A process (used primarily for government bonds) where bonds are sold to the highest bidders |
| Private placement | Sale of bonds directly to a small number of qualified investors, not publicly offered |
| OTC (over-the-counter) | Decentralized trading of bonds directly between parties, not on a formal exchange |
| Bid-ask spread | The difference between the price a dealer will buy (bid) and sell (ask) a bond; a measure of liquidity |
| Dealer market | A market where dealers make markets by quoting bid and ask prices |
| Settlement date | The date on which the bond transaction is completed and payment/delivery occurs |
See also: Bond Features