Accrued interest – The interest that is due and payable at a point of time.
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% (1.0112 -1). This is similar to the concept of Annual Rate of Return.
Arbitrage – The simultaneous buying and selling of a security at two different prices in two different markets, resulting in profits without risk. Perfectly efficient markets present no arbitrage opportunities. However, arbitrage opportunities are often precluded because of transaction costs.
Asset liability management – It is a technique of liquidity management to ensure that the tenure of liabilities more or less match with the average tenure of the assets. This concept is of utmost importance to banks and financial institutions in the spreads business.
Benchmark rate –  A standard interest rate used for comparison. Globally the LIBOR is considered as a benchmark rate. In India the Government T-Bill rate is considered as a benchmark rate. All variable rate instruments are expressed as a spread over the benchmark rate.
Basis Point – It represents 1/100th of a percentage point. In other words, 100 basis points is equal to one percent.
A measure of a security's sensitivity to changes in the overall market. It is the extent to which changes in security returns can be explained by the market. A beta of 0.9 means that a 1 % change in the market in the short run implies a 0.9 % change in the value of the security. Securities with a beta greater than unity are classified as aggressive securities.
Bearer bond – These are bonds that are not registered in the books of the issuer. Such bonds are held in physical form by the owner, who receives interest payments by physically detaching coupons from the bond certificate and delivering them to the paying agent.
Bond – A bond is a contract between two parties where the owner of the bond is promised interest and principal repayment in exchange for the money paid for the bond. When an investor buys bonds, he or she is lending money.
Bond indenture – It is the contract that sets forth the promises of a corporate bond issuer and the rights of investors.
Bond indexing – It is the designing of a bond portfolio so that its performance will match the performance of some bond index.
Callable Bonds – These are bonds that give the right to the issuer to redeem the bonds before the maturity after an agreed period of time from the issue date. The issuer in the event of a falling interest regime, which permits them to raise funds at a lower rate, exercises these call options.
Call price – Price at which a callable security can be redeemed by the issuer.
Credit rating – A published ranking, based on detailed financial analysis by a credit bureau, of one's financial soundness, specifically relating to one's ability to service debt obligations. The highest rating is usually AAA, and the lowest is D. In India Crisil is the largest credit rating agency.
Compound interest – Interest earned on interest as well as on principal.
Convertible security – A security that can be exchanged, at a specified price, for shares of the issuer's stock.
Current yield – The ratio of coupon interest to the current market price. It reflects the interest yield at the point of entry.
Debt market – The market for trading debt instruments.
Deep-discount bond – A bond issued with a very low coupon or no coupon and selling at a price far below par value. When the bond has no coupon, it is called a Zero coupon bond.
Default – Failure to make timely payment of interest or principal on a debt security or to otherwise comply with the provisions of a bond indenture.
Duration – A common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates.
Effective annual yield – Annualized interest rate on a security computed using compound interest techniques.
Financial risk – The risk that the cash flows of an issuer will not be adequate to meet his financial obligations. Also referred to as the additional risk that a firm's stockholder bears when the firm utilizes debt and equity.
Flattening 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 decreased.
Floating coupon rate – Coupon rate that varies with ("floats against") a standard market benchmark or index.
Hedge – A transaction that reduces the risk of an investment.
High grade bond – Bond rated triple-A or double-A by Standard & Poor's or CRISIL.
High-coupon bond refunding – Refunding of a high-coupon bond with a new, lower coupon bond.
Inverted yield curve – Yield curve in which short-term rates are higher than long-term rates. This usually reflects diminishing confidence in the future and is a sign of impending recession in the economy.
Junk bond – A bond with a speculative credit rating of BB (S&P) or BA (Moody's) or lower is a junk or high yield bond. Such bonds offer investors higher yields than bonds of financially sound companies.
Lead managers – The leading member of the syndicate issuing a new security such as a corporate bond. The lead manager administers the marketing, allocation, and delivery of the security. The lead manager--in consultation with the borrower--also selects co-managers; determines the initial and final terms of the issue; selects the underwriters; and selects the selling group.
Lien – A legal claim against an asset which is used to secure a loan and which must be paid when the property is sold.
Liquidity – A market is liquid when it has a high level of trading activity, allowing buying and selling with minimum price disturbance. Also a market characterized by the ability to buy and sell with relative ease. When there are many securities then the market is liquid in the broad sense and when these securities have sufficient volumes then the market is liquid in deep sense.
Mark-to-market – The process whereby the book value or collateral value of a security is adjusted to reflect current market value.
Marked-to-market – An arrangement whereby the profits or losses on a futures contract are settled each day.
MIBID/MIBOR – Mumbai Interbank Bid and Offer rates. Calculated by the average of the interbank offer rates based on quotations at nearly 30 Major Banks.
Market index – Also called "index." Statistical composite that measures changes in the economy or financial markets. Often expressed in percentage changes from a base year or from the previous month.
Modified duration – The ratio of Macaulay duration to (1 + y), where y = the bond yield. Modified duration is inversely related to the approximate percentage change in price for a given change in yield.
Nominal rate of return – The total percentage increase in the value of an investment over the holding period.
Redemption – Repayment of a debt security or preferred stock issue, at or before maturity, at par or at a premium price.
Repo rate – Repurchase agreement rate. The rate at which a holder of securities sells them to an investor with an agreement to repurchase them at a fixed price on a fixed date. The security "buyer," in effect, lends the "seller" money for the period of the agreement.
Security – Piece of paper that proves ownership of stocks, bonds and other investments.
Settlement date – Date on which cash payments for purchases are due and for which accrued interest and price/yield relationships are computed.
Settlement price – Expected valuation for the selected security on the settlement date.
Subsidiary General Ledger (SGL) – It is the dematerialized ledger account in which accounts of government securities are held in the electronic form.
Subordinated debenture bond – An unsecured bond that ranks after secured debt, after debenture bonds, and often after some general creditors in its claim on assets and earnings. Related: Debenture bond, Mortgage bond, and Collateral trust bonds.
Terminal value – The value of a bond at maturity, typically its par value, or the value of an asset (or an entire firm) on some specified future valuation date.
Yield – The percentage rate of return paid on a stock in the form of dividends, or the effective rate of interest paid on a bond or note.
Yield curve – The graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities. The yield curve can fairly forecast the turning points of the business cycle.