FIIG - The Fixed Income Experts

Fixed Income Glossary

Bond terms & definitions to know


Australian Business Number


Asset Backed Security

Accrued interest

Interest earned, but not yet paid since the last coupon payment date.

A bond will accrue interest on a daily basis during a coupon period and then pay the interest (or the coupon) on the last day of the interest period. If an existing investor sells a bond halfway through a coupon period then the new investor will pay the seller the accrued interest up until the date of sale as part of the bond purchase consideration as set out in the contract note. The new investor receives the full coupon at the next coupon date if they are the registered holder at that time.


Authorised Deposit taking Institution


Australian Financial Markets Association


Australian Office of Financial Management


Australian Prudential Regulation Authority


Australian Securities and Investments Commission

Asset backed security (ABS)

An ABS is a type of debt security based on a pool of underlying assets or collateralised by the cash flows from a specific pool of underlying assets. The asset pools can be constructed from many types of receivables including (but not limited to) credit card payments, auto loans and mortgages. Typically, the underlying assets are illiquid and private in nature, but by combining them in a large and diversified pool and segmenting the securities into tranches, they become marketable securities. See also Tranche.

The most common type of ABS is a residential mortgage backed security (RMBS).


Australian Stock Exchange


Australian Taxation Office


Australian Dollar

Austraclear (now known as Exigo)

An electronic system managed by the Australian Stock Exchange (ASX) for the settlement and registry of money market and fixed income securities.

Australian bonds

Australian bonds broadly fall into two categories: those issued by the Australian government (government bonds) and those issued by Australian corporations (corporate bonds). Australian investors can purchase these securities to provide capital stability, cashflow, liquidity and diversity in their investment portfolio. Some bonds are listed on the ASX but the majority of bond trading in Australia takes place in over-the-counter (OTC) market.

Australian Financial Markets Association (AFMA)

AFMA is the industry association for Australia's wholesale banking and financial markets industry representing over 140 entities across the sector. Members include Australian and foreign banks, securities companies, state government treasury corporations, fund managers, traders in electricity and other specialised markets and industry service providers. FIIG Securities Limited is a member of AFMA.

Australian Government guarantee

In response to the global financial crisis and other countries offering to guarantee bank deposits, the Australian Government offered to guarantee ADI deposits in October 2008 for three years. The guarantee applies for all deposit balances under $250K per entity held in ADIs until 11 October 2011. Eligible ADIs can (for a predetermined fee, depending on their credit rating), also obtain a guarantee for wholesale funding. Depositors with over $250K held in ADIs can insure their deposits for an additional fee.

Australian Office of Financial Management (AOFM)

AOFM is a specialised agency within Treasury responsible for management of Australian Government debt. The AOFM's activities include the issue of treasury bonds, treasury notes, management of the Australian Government's cash balance and management of a portfolio of debt and investments.

The AOFM aims to manage Australian Government net debt at least cost, subject to an acceptable level of risk, and to contribute to supporting financial market efficiency.

>Australian Prudential Regulation Authority (APRA)

APRA is charged with the prudential supervision of Authorised Deposit-taking Institutions (ADIs), ultimately aiming to ensure that financial promises made by the bodies it regulates are met within financial markets which are stable, efficient and competitive. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies and most members of the superannuation industry.

Australian Securities and Investments Commission (ASIC)

ASIC is Australia's corporate, markets and financial services regulator. ASIC contributes to Australia's economic reputation and wellbeing by ensuring that Australia's financial markets are fair and transparent and supported by confident and informed investors and consumers. ASIC is an independent Commonwealth Government body. ASIC is set up under and administered by the Australian Securities and Investments Commission Act 2001 (ASIC Act), and carries out most of the work under the Corporations Act. The Australian Securities and Investments Commission Act 2001 requires ASIC to:

  • maintain, facilitate and improve the performance of the financial system and entities in it
  • promote confident and informed participation by investors and consumers in the financial system
  • administer the law effectively and with minimal procedural requirements
  • enforce and give effect to the law
  • receive, process and store, efficiently and quickly, information that is given to them, and
  • make information about companies and other bodies available to the public as soon as practicable

Australian Stock Exchange (ASX)

The ASX is a national organisation within Australia that enables electronic trading of shares and other securities through SEATS (stock exchange automated trading system).

Authorised Deposit-taking Institution (ADI)

APRA defines ADIs as the following:

"ADIs are corporations which are authorised under the Banking Act 1959. ADIs include banks, building societies and credit unions. All ADIs are subject to the same prudential standards but the use of the names "bank", "building society" and "credit union" is subject to corporations meeting certain criteria."

Bank Bill

There are two types of bank bills:

  • bank accepted bills
  • bank endorsed bills

bank accepted bill, is a bill of exchange where the issuing bank has a liability to pay the holder the face value of the bill at maturity. The parties involved are the bank as acceptor and a borrower as drawer. In certain circumstances, the liability is contingent on the borrower, or the drawer, defaulting.

Bank endorsed bills have a 100% bank guarantee. In the event of default the first call for payment is back to the drawer of the bill, then, if the drawer fails to pay, the holder will present to the bank for payment.

Bank bill swap rate (BBSW)

A compilation and average of market rates supplied by domestic banks in regard to the specific maturities of bank bills. BBSW is calculated at ten o’clock every morning and compiled by AFMA.

The purpose of BBSW is to provide independent and transparent reference rates for the pricing and revaluation of Australian dollar derivatives and securities.

Bank bonds

A promise by a bank to repay a debt on a certain date subject to conditions. Banks issue both senior and subordinated bonds

Base payment

The term for the initial base amount (typically with an indexed linked bond) where the value rises and falls according to changes in CPI. For example, a capital indexed bond might have a base payment of 100 in year one and a coupon of 4%. If, over year one, the CPI increases by 10%, then the base payment would rise from 100 to 110, so that coupon payment would also rise from 4% to 110% of 4%, or 4.4%.


Basis points (bps)

The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security. The relationship between percentage changes and basis points can be summarised as follows:

1% = 100 Basis Points
0.01% = 1 Basis Point

A bond whose yield increases from 6.5% to 7% is said to increase by 50 basis points; or interest rates that have dropped by 1% are said to have decreased by 100 basis points.


Bank Bill Swap Rate

The Bank Bill Swap Rate, commonly known as BBSW, is the rate at which banks will lend to each other. Simply, it is the short term swap rate - a compilation and average of market rates supplied by domestic banks regarding the specific maturities of bank bills.

Bid / Bid price

An expression used in share, bond and foreign exchange markets for the price at which a broker will buy a security (that is the price at which an investor can sell).

Bid offer/ Bid ask spread

The amount by which the ask price exceeds the bid. It is the difference in price between the highest price that a buyer is willing to pay for bond and the lowest price for which a seller is willing to sell it.


Bloomberg is a financial software, news and data company. The company provides financial software tools such as analytics and equity trading platform, data services and news to financial companies and organisations around the world. It has a one-third share of the market, similar to Thomson Reuters.


A security that pays a defined distribution (the coupon) for a given period of time (the term) and repays the face value of the security at maturity.

A bond is a loan from an investor to the issuer of the security. There are many types of bonds including; floating, fixed, consumer price index (CPI) bonds, inflation-linked, nominal and Eurobonds.

Bond rate

A bond pays a defined distribution (the coupon) for a given period of time (the term) and repays the face value of the security at maturity. The percentage of these coupon payments over the term compared to the face value is known as the bond rate, bond yield or yield to maturity.

Bond yield

A bond pays a defined distribution (the coupon) for a given period of time (the term) and repays the face value of the security at maturity. 

The percentage of these coupon payments over the term compared to the face value is known as the bond yield, rate or yield to maturity. These coupon payments are a legal requirement by the issuer; the bond holder must be paid or the entity will be in default. This requirement provides a more stable income from investment than other investment types such as a dividend received from an equity share. This feature is important for investors seeking a regular income from their investments.


Basis Points

Buy bonds

How to buy bonds

Bonds offer investors a high level of capital stability with the addition of regular cash flow, liquidity and flexibility. A common rule of thumb in modern portfolio theory is to have your age as a percentage of fixed income investments, like corporate bonds, in your portfolio.

The challenge for most individual and SMSF investors has been how to buy bonds. Historically bonds were reserved for institutional investors due to high minimum investment size. FIIG provides the ideal solution allowing investors to buy bonds from just $50,000 through FIIG’s DirectBonds Service.

We provide access to a broad universe of local and overseas bond issues:

  • Financial institution and corporate bonds
  • Government and semi-government bonds
  • International bond issues
  • Fixed, floating rate and inflation-linked bonds.  

An agreement that the seller will repurchase its own securities within a specified time at a pre-determined price

Call date

The date prior to maturity on which a callable bond may be redeemed by the issuer. If the issuer determines there is a benefit to refinancing the issue, the bond may be redeemed on the call date, at par, or at a small premium to par depending on the terms of the call option.

Call option

An option that gives the holder the right but not the obligation to buy a security at an agreed upon price (the "strike price") at any time up to an agreed upon date.

The holder of the call option is hoping that the price of the underlying security will increase. The holder of the call option makes money by purchasing the security at the agreed upon strike price and selling it at the higher actual current market price if the option is exercised. In compensation for this benefit a payment (the premium) is made to the seller of the option.


A maximised level at which an interest rate cannot increase

Capital Gain

The result of selling a capital asset such as shares, bonds or real estate at a higher price than it cost

Capital indexed bonds (CIB)

A bond whose base payment rises and falls with the CPI. For example see "Base payment"

Capital loss

Arises if the proceeds from the sale of a capital asset are les than the purchase price

Capital price

See Clean price

Cash target rate

See Official cash rate


Collateralised Debt Obligation


Credit Default Swap


Commonwealth Government Inscribed Stock or Commonwealth Government Bonds


Commonwealth Government Loans


Clearing House Electronic Sub-register System


Capital Indexed Bonds

Clean price

The price of a coupon bond that does not include any accrued interest.

Clean Price = Dirty Price - Accrued Interest

Clean price is also known as capital price, meaning "clean of, or excluding, coupon" (see "Coupon"). See also "Dirty Price".


Collateralised Loan Obligation


Commercial Mortgage Backed Security


Is a borrower's pledge of a security or guarantee, usually an asset such as property, for the repayment of a loan if the borrower fails to repay the loan in full. The collateral serves as protection for a lender against a borrower's risk of default - that is, any borrower failing to pay the principal and interest under the terms of a loan obligation. If a borrower does default on a loan due to insolvency or other event that borrower forfeits the property pledged as collateral and the lender then becomes the owner of the collateral which can then be liquidated.

Collateralised debt obligation (CDO)

CDOs are normally floating rate structured debt securities that pay a higher return compared to similarly rated securities in exchange for a higher risk profile. They are complex, structured products typically arranged by investment banks with a range of tranches that are independently rated by credit rating agencies.

The performance of an investment in a CDO security is linked to the credit risk of an underlying portfolio of company debt or other securities. The exposure to this portfolio is leveraged, the degree of which is determined by the subordination of the investment in the structure of the CDO amongst other things; the tenor of CDO securities typically ranges from three to seven years. If only a few of the underlying portfolio of securities default over the life of the CDO, investors will receive their capital back in full. If more than a handful default, investor's capital may be at risk. The more companies that default, the greater the probability of investors losing capital.

Synthetic CDOs reference a portfolio of credit default swaps (i.e. synthetic credit exposure) as opposed to investing in corporate bonds. Instead of acquiring the physical portfolio of assets, credit default swaps are used to create a synthetic portfolio of assets and the investors" cash is "parked" in highly rated (typically AAA rated) collateral.

Collateralised loan obligation (CLO)

An asset backed security backed by loan receivables. Banks package and sell their loan receivables to investors in order to decrease risk and improve liquidity. CLOs are a structured product and are assigned tranches that are rated by credit rating agencies. The lowest tranche bears the first loss position and due to this leverage through subordination, returns the highest coupon.

Commercial paper

An unsecured promissory note usually with a fixed maturity of one to 270 days. Commercial paper is a money market security issued by banks and corporations to raise funds to meet short term obligations.

Commonwealth Government bonds

Commonwealth Government bonds (also known as Commonwealth Government Loans or CGL) are debt securities issued by the Commonwealth of Australia. These bonds are issued by the Commonwealth Government to meet its financing requirements.

Commonwealth Government bonds carry the highest credit rating (AAA/Aaa) and are considered a risk free investment as the Commonwealth has unlimited ability to tax and/or produce currency to repay a bond. A new information memorandum on these bonds has been issued by the AOFM dated 29 September 2009 (see AOFM).

Contract note

A document setting out the agreed terms of a transaction between the two parties for the settlement of a security

Convertible bond

A fixed interest security that gives the investor the option of converting the bond at a later date to equity

Corpoate bond

A bond issued by a corporation. See Bond. Learn more about corporate bonds


The rate of interest paid on a fixed income investment or bond. Coupons can be paid annually, semi-annually or quarterly or as agreed in the terms of the security.

The coupon rate can be fixed or floating for the term of the security. If it is a floating rate then it is likely that it will be linked to a benchmark such as the 90 day bank bill rate. The coupon rate is set by the issuer based on a number of factors including prevailing market interest rates and its credit rating.

Fixed rate bonds in Australia predominantly pay a semi-annual coupon whereas floating rate bonds predominantly pay a quarterly coupon. Indexed linked bonds usually pay quarterly coupons.

For example, a $500,000 bond with a fixed rate semi-annual coupon of 8% will pay two $20,000 coupons each year.

Coupon margin

See Issue margin

Coupon rate

A bond pays a defined distribution (the coupon) for a given period of time (the term) and repays the face value of the investment at maturity. The percentage of these coupon payments over the term compared to the face value is known as the coupon rate, interest rate or yield to maturity.


Consumer Price Index

CPI bonds

See Index-linked bonds (ILBs) and Capital indexed bonds (CIBs)

Credit enhancement

A method where a company or a debt issuer attempts to improve its debt or credit worthiness. Common examples include the use of insurance, wrapped debt or provision of a third party guarantee.

Credit rating agencies

Are engaged by issuers to assign credit ratings which reflect the issuer or its securities ability to pay coupons and repay principal. The major credit ratings agencies include Standard & Poors, Moodys Investor Services and Fitch Ratings.

Credit risk

The risk that an issuer may be unable to meet the interest or capital repayments on the loan when they fall due. Generally, the higher the credit risk of the issuer, the higher the interest rate that investors will expect in order to risk lending funds to the issuer.

Ratings agencies like Standard & Poors and Moodys provide an independent credit rating service that allows investors to assess and grade issuers. For example, the Australian Federal Government has the highest possible credit rating of AAA (meaning it has very low credit risk).

Credit spread

The difference between two securities’ yields, based exclusively on the variation in credit quality. For example, Australian Government bonds which are rated AAA and a corporate bond of a lower credit quality, single A.

For investors to accept a higher risk asset like a corporate bond they must be paid a higher coupon. The difference in margin between the government bond and the corporate bond is known as the credit spread.

Cum interest

Securities traded "cum interest" carry the right to the next interest payment

Cumulative / Non-cumulative


Missed dividend payments are added to the next dividend payment.


Missed dividend payments are forgone. The issuer of the security is not obliged to pay the unpaid amount to the holder.


A type of debt security usually secured by a fixed or floating charge over an underlying asset or pool of assets. There are specific provisions of the Corporations Act 2001 that govern the issue of debentures.


In the financial sense, is an obligation to repay a specific value of borrowed funds


Failure by an issuer to satisfy the terms of a loan or bond obligation

Dirty price

Is the price of a bond that includes interest accruing and is due for payment on the next coupon payment. Dirty price is also known as gross price. May also be referred to as Clean price.

Discount margin

See Trading margin

Discount security

Non-interest bearing money market securities issued at a discount to face value. The holder receives face value at maturity. Examples include bills of exchange, promissory notes and treasury notes.

Discount to face value

Bonds may trade at a discount to face value in secondary markets where coupon, demand and market perception of the entity influence the price of secondary trades.

Bonds usually have a face value of $100. If a bond is acquired at a discount price, say of $75, then the bondholder will make a capital gain of $25 assuming the company makes a full repayment of $100 face value at maturity.


The payment of income from a fixed income security usually referred to as coupon. Sometimes the term distribution is associated with instruments where payment of income is conditional (for example a hybrid security) rather than an unconditional payment (for example a senior bond).


Duration of a financial asset measures the sensitivity of the asset's price to interest rate movements. It is approximately equal to the percentage change in price for a given change in yield.


Delivery Versus Payment


European Commission

Effective yield

The effective yield is the yield of a bond, assuming that you reinvest the coupon (interest payments) once you have received payment. Reinvesting the coupon will produce a higher yield because interest is earned on the interest payments.

The calculation assumes the investor can reinvest their coupon payments at the coupon rate. For bonds, effective yield is an annual rate of return associated with a periodic interest rate.

The formula for effective yield is:

(1 + i / n) n - 1 

i = periodic interest rate

n = the number of payment periods in one year


Electronic Funds Transfer


Corporations raise funds for operations in different forms. Equity (shares or stock) is one method. From an investor's perspective it ranks behind other sources of funds for repayment should the corporation go into wind-up (see figure below). Equity is also referred to as the first loss security.


European Union


A Eurobond is a debt security issued by a borrower in a market outside its home jurisdiction in a denominated currency. For example, an Australian Dollar Eurobond is a bond issued in Australian dollars which is issued and sold outside Australia. The bonds are typically governed by UK law (rather than Australian law), are listed on a European exchange and traded and settled outside Australia. There are limitations on the sale of Eurobonds in some jurisdictions.

The majority of Eurobonds are now owned in electronic rather than physical form. The bonds are held and traded within one of the clearing systems (Euroclear and Clearstream being the most common). Coupons (interest payments) are paid electronically via the clearing systems to the holder of the Eurobond or their nominee account.

The Eurobond market has no national "home" and is by no means exclusively European in its composition. In recent years EU resident borrowers have only accounted for 40% of Eurobonds issued.

Ex-coupon / Ex-interest / Ex-dividend

A classification of trading bonds or preference shares when the coupon belongs to the seller rather than the buyer.

The terms of a bond will establish on what date the bond will trade ex-coupon and it can be different for different bonds. For Commonwealth Government bonds the ex-coupon date is seven calendar days before the coupon date. The period between the ex-coupon date and the coupon date is known as the ex-period.


See Austraclear.

Face value

Is the initial capital value of the bond and the amount repaid to the bondholder on its maturity, usually $100.


The United States Federal Reserve System


Fixed Income Investment Group and FIIG Securities Limited

Fixed Income

Fixed income refers to debt securities (for example bonds) that pay a defined distribution (the coupon) for a given period of time (the term) and repay the face value of the security at maturity. A fixed income security or bond is a loan from an investor to the issuer of the security.

Fixed Rate Bond

A fixed rate bond is a security that pays a fixed pre-determined distribution or coupon. The coupon of a fixed rate bond will be set at the time of issue and not change during the life of the bond. The Commonwealth Government, state governments, banks and corporates all issue fixed rate bonds in Australia.

Fixed/Floating interest rates

Rates on bonds can be fixed (set at the time of issue) or floating. If they are floating then they will be set as a constant margin to a variable benchmark such as the 90 day bank bill rate expressed, for example, BBSW +3.25%. The coupon rate is set by the issuer based on a number of factors including prevailing market interest rates and the entity's credit rating.

Floating charge

A form of security, giving a creditor such as a bank, finance company or individual lender the right to receive payment from a specific fund or from the proceeds of the sale of a specific item, property or asset of a business, should a borrower default.

With a floating charge the creditor's charge or claim is not lodged over one particular asset of the borrower but fixes on all, or nominated assets if the borrower defaults.

Floating rate note (FRN)

A floating rate note (FRN) or bond is a security that pays a coupon linked to a variable benchmark.

In Australia most FRNs pay a coupon set as a margin above the bank bill swap rate (BBSW) which is the market benchmark three month interbank rate. The actual coupon for an interest period will be determined at the start of that period by applying the margin to the three month BBSW rate on the first day of the coupon period. The three month BBSW rate will rise and fall over time based on prevailing interest rates. The margin is fixed and will be set at the time of issue.


A minimum level at which an interest rate cannot decrease.


Floating Rate Note


Goods, securities or instruments that are equivalent and, therefore, interchangeable. In other words, they are securities that consist of many identical parts which can be easily replaced by other identical securities.


Face value


Measures the extent to which a company or an investment is funded by debt. Also known as leverage.

Government and semi-government bonds

A medium to long term debt security in which a promise by either the Commonwealth Government (known as government bond) or one of the state governments or territories (semi-government bond) to repay a debt on a certain date subject to conditions.

Government bonds

Government bonds are bonds which are issued by a government. Australian government bonds trade in amounts of $1,000, and interest payments and the re-payment of face value at maturity are Commonwealth Government guaranteed. Also known as Commonwealth Government Securities (CGS), government nominal bonds have maturities currently ranging from one year to 12 years, however longer dated maturities are also available for index linked bonds, both of which may be bought and sold on the secondary market.

Gross price

See Dirty price


The assumption of responsibility for the payment of a debt or performance of some obligations if the party primarily liable does not meet its obligations.


A party who will guarantee repayment or performance of an obligation.

High Yield Bond

A bond with a high yield due to the issuer's sub-investment grade rating, sometimes known as a junk bond. These bonds pay very high yields, reflective of the high risk involved.


Holder Identification Number

Hybrid Securities

A broad classification for a group of securities, used by a range of corporations to raise money, that combine both debt and equity characteristics. These are usually higher risk investments due to their subordination in the capital structure. In Australia, the major banks are large issuers of these types of securities. Below are five types of hybrids securities and examples of listed hybrid securities within each type.

  1. Income Notes and Securities are true perpetual securities, that is, they have no maturity date or a very long maturity. These securities usually pay floating rate coupons and while the issuer normally has the option to call (i.e., redeem them for their face value) on any payment date, it is unlikely they will ever be redeemed. 
    Income Notes and Securities examples include: Bendigo Bank (BENHB), Macquarie Group (MBLHB), National Australia Bank (NABHA) and Suncorp Metway (SUNHB).

  2. Reset Preference Shares are typically fixed rate preference shares where the coupon is set for a defined term, normally five years. At the end of the five year period, the preference shares are remarketed where they are either redeemed or a new fixed coupon rate is set. They are technically perpetual in nature. 
    Reset Preference Shares include: Bendigo Bank RPS (BENPA), Bank of Queensland (BOQPA), IAG Reset Preference Shares 1 (IAGPA and, Suncorp Metway RPS (SUNPA).

  3. Converting Preference Shares are preference shares that convert into the ordinary shares of the issuer after a defined period of time assuming certain conditions occur. Most converting preference shares offer the option for the issuer to redeem them for cash however equity conversion is usually the default option. They are technically perpetual in nature. 
    Converting Preference Shares include: ANZ (ANZPA & ANZPB), Westpac (WBCPA & WBCPB) and Commonwealth Bank PERLS 4 &5 (CBAPB & CBAPA).

  4. Step up Preference Shares are the most common type of corporate hybrid. These preference shares normally pay a floating rate coupon and have a call date after a set period, normally five years. If these securities are not called at the first call date, then the coupons "step up" to a higher rate to compensate investors for non-redemption. They are technically perpetual in nature. 
    Step up Preference Shares include: Elders SPS (ELDPA), Fairfax SPS (FXJPB), Goodman Plus (GMPPA), Orica SPS (ORIPB) and Woolworth's Notes (WOWHB).

  5. Stepped up Preference Shares are step up preference shares that have already passed the step up date and pay a higher coupon over and above the original coupon. They are perpetual in nature although the issuer has the option to call the securities on any future coupon payment date. 
    Stepped up Preference Shares include: Australand Assets Trust (AAZPB) and Gunns Limited (GNSPA).

Investment and Financial Services Association Limited


Inflation Indexed Annuities


International Monetary Fund

Income Security

Generic term for a subset of hybrid securities where there is no expected maturity, call date, reset or other conversion mechanism. Income securities are considered true perpetual instruments.

Index-linked bonds (ILBs)

Index-linked bonds are securities whose return includes a component that is determined by the future level of a predetermined index, for example; CPI or inflation. There are two main types of inflation linked bonds issued in Australia:

  • capital indexed bonds (CIB)
  • inflation indexed annuities (IIA)

CIBs pay a pre-determined coupon based on a capitalising principal amount where the capitalisation is a function of inflation. At maturity the investor receives the capitalised face value. An IIA is an annuity structure where each periodic payment includes a coupon and principal component where the principal is adjusted for inflation. The Commonwealth Government, state governments and some corporations have issued inflation linked bonds in Australia.

ILBs are also known as inflation indexed bonds or CPI bonds.

Initial public offering (IPO)

A company issues shares or some classes of debt instruments to the public for the first time. After the initial issuance, investors can often purchase from other investors in the secondary market.


When an individual or entity is unable to pay all their debts as and when they become due and payable. See Corporations Act 2001 section 95A.

Interest rate risk

The risk associated with an interest bearing asset, such as a loan or a bond, due to variability of interest rates. In general, as rates fall, the price of a fixed rate bond will rise, and vice versa. Interest rate risk is commonly measured by the bond's duration. See "Duration".

International Monetary Fund

The IMF plays various roles in the global monetary system. The IMF surveys and monitors economic and financial developments and lends funds to countries with balance of payment difficulties. It promotes global monetary and exchange stability, facilitates the expansion and balanced growth of international trade as well as assisting in the establishment of a multilateral system of payments for current transactions.

Investment and Financial Services Association Limited (IFSA)

A national not-for-profit organisation which represents the retail and wholesale funds management, superannuation and life insurance industries. IFSA has over 135 members.


A person or entity that lends money or invests in order to earn an income through interest payments or achieve a capital gain on sale or redemption of the investment.


Initial Public Offering


International Swaps and Derivatives Association


Is an acronym for "International Security Identification Number" and is a unique number assigned to a bond at the time of issue. This 12 digit number identifies an exact bond to any institution in the world.

Issue Margin

The amount of interest paid by an issuer on a Floating Rate Note is the sum of a variable rate plus a margin. That margin is called the Issue Margin, also known as the Coupon Margin. In Australia, the variable rate is generally the Bank Bill Swap Rate (BBSW); while many other OECD countries use a form of LIBOR.


The entity (or borrower) that issues the debt security to raise money from investors. Issuers in the Australian bond market include the Commonwealth Government, state governments and territories, large institutions or corporations.

Junk bond

Bonds rated by credit rating agencies with a sub-investment grade rating.

There are no results under "K"


See "Gearing"


London interbank offered rate (similar to the Australian BBSW). LIBOR is calculated daily by the British Bankers" Association by asking a panel of major banks what it would cost them to borrow funds for various periods of time and in various currencies and then creating an average of the individual bank's figures. LIBOR is the benchmark used by banks, securities houses and investors to gauge the cost of unsecured borrowing in the London money markets.


Sale of assets from an entity that has failed to meet commitments on its debt. Proceeds are applied to its creditors under a strict order (see Section 2.5 for the order of creditor's payments in liquidation).


The liquidity or marketability of an asset is a function of the difference between the bid (the price at which the market is willing to buy the security) and the offer (the price at which the market is willing to sell the security), more commonly known as the bid-offer spread. If a market is liquid it will have many participants at any given time competing to buy or sell the assets, resulting in a narrow spread. If it is not liquid it will be very difficult to buy or sell the asset without adjusting the capital price paid or received for the asset significantly, creating a wide bid-offer spread.

Liquidity risk

This is the risk that a security cannot be easily sold at, or close to, its market valued.

Managed funds

Investors pool funds to provide scale to invest in a diverse range of assets. Usually used by smaller investors rather than investing in a smaller number of direct investments.

Mark to market

A realistic appraisal of a securities' current realisable value. It is the accounting act of recording the price or value of a security, portfolio or account to reflect its current market value rather than its book value. For fixed income securities that do not trade on a recognized exchange, the mark to market is often determined by reference to a recognised pricing source.

Market index

A measure of change in the value of a specific group of shares, bonds or other investments that the market index tracks from a specific starting point. The purpose of an index (in most cases) is to replicate the returns accumulated from a proportional holding in every security included as a constituent of the index.

Indices generally use index numbers to allow return comparisons. Index numbers are created by starting a portfolio at an arbitrary value (100 or 1000) and incrementing them each day by the portfolio's daily return as a percentage of the starting value.

In Australia, the most frequently used market indices for assessing fixed income performance are the UBS Bank Bill Index and the UBS Composite Bond index.


This is the date when the bond is due for repayment by the issuer. The principal plus any outstanding interest of a particular security will be repaid on this date.


Mortgage Backed Security

Medium term note (MTN)

MTN is a generic term covering debt securities also commonly termed corporate bonds (bonds) and floating rate notes (FRNs).

Minimum investment

Minimum amount required to invest in an offering or security.

Modified duration

Modified duration is a measure of the price sensitivity of a bond to interest rate movements. Typically, modified duration provides an estimate of how a bond will change in price for a 100 basis point (bps) or a 1% movement in interest rates.

Mortgage backed security (MBS)

A type of asset backed security or debt obligation that is secured by a mortgage or collection of mortgages, most commonly on residential property. These loans are assembled together to form pooled investments. Instead of paying investors fixed coupons and principal, it pays out the cash flows from the pool of mortgages. The bank acts as a middleman between the home buyer and the investment markets.


Medium Term Note

Negotiable certificate of deposit (NCD)

A short term, low risk, transferable discount security issued by a bank or ADI.

Nominal bonds

A nominal bond pays a return on a fixed principal amount. The bond takes no account of possible rises in inflation.

Offer / Offer price

An expression used in share, bond and foreign exchange markets for the price at which a broker will sell a security (that is the price at which an investor will buy). Note the offer price will typically be the capital price or clean price. Also see "Bid".

Offer yield

The offer yield is the yield to maturity based on current prevailing interest rates at which a fixed income broker (e.g. FIIG) would sell a bond to an investor.


The term used for the primary issuance of bonds by an entity.

Official cash rate

Established by the Reserve Bank of Australia (RBA) at its monthly meetings. It determines the overnight cash rate applicable to loans between financial intermediaries. It is the main tool the RBA employs to dictate monetary policy.

Open market

The term used to describe the market in which bonds are bought and sold after primary issuance.

Opportunity cost

The opportunity cost is the loss of potential income in placing funds in an investment. The potential income that is lost is that additional income which could have been earned from an alternative investment.


Over the Counter

Over the Counter (OTC)

Refers to the sale of securities outside of an exchange, whether electronically or over the phone. Traditionally, most fixed income securities are traded over the counter.

Par value

The face value of a debt security.

Payment schedule

The schedule of dates on which the issuer of a debt security will pay coupons and principal.

Perpetual security

A security with regular periodic payments for an infinite number of periods with no maturity date.


A bond's value in the secondary market can be greater than its face value. The bond is then deemed to be selling at a premium. This will occur if the coupon is higher than the yield of a fixed income security.

Present value

The value of a future cash flow discounted at an appropriate rate of interest to give its value in today's dollars.

Primary market

The new issue market. See also "Secondary market".


The face value of the debt security on which interest is calculated.

Professional investor

Under the Corporations Act 2001, a professional investor is defined as a person in relation to whom one or more of the following paragraphs apply:

  • the person is a financial services licensee
  • the person is a body regulated by APRA, other than a trustee of any of the following (within the meaning of the Superannuation Industry (Supervision) Act 1993):
    • a superannuation fund
    • an approved deposit fund
    • a pooled superannuation fund
    • a public sector superannuation scheme
  • the person is a body registered under the Financial Corporations Act 1974
  • the person is the trustee of:
    • a superannuation fund
    • an approved deposit fund
    • a pooled superannuation trust or
    • a public sector superannuation scheme within the meaning of the Superannuation Industry (Supervision) Act 1993 and the fund, trust or scheme has net assets of at least $10 million
  • the person controls at least $10 million (including any amount held by an associate or under a trust that the person manages)
  • the person is a listed entity or related body corporate of a listed entity
  • the person is an exempt public authority
  • the person is a body corporate or an unincorporated body, that:
    • carries on business of investment in financial products, interests in land or other investments and
    • for those purposes, invests funds received (directly or indirectly) following an offer or invitation to the public, within the meaning of section 82 of the Corporations Act 2001, the terms of which provided for the funds subscribed to be invested for those purposes
  • the person is a foreign entity that, if established or incorporated in Australia, would be covered by one of the preceding paragraphs
Promissory note

A discount security that is an unconditional promise to pay at a fixed or determinable future time a sum certain in money.


A document disclosing the details and particularly the risks of a security issue where the security can be sold to retail investors under the Corporations Act 2001.

Purchase price

Purchase price is the amount that a bondholder pays to purchase a bond. Price can be quoted on a "clean" basis meaning that this is the capital price of the bond, or it can be quoted on a "dirty" basis meaning that it includes both the capital price plus the accrued interest.

Put option

An option that gives the holder the right but not the obligation to sell a security at an agreed-upon price at any time up to an agreed upon date.


Present Value

There are no results under "Q"


Reserve Bank of Australia

Recovery Rate

Refers to the percentage amount recovered once an entity enters liquidation or goes into wind-up with relevance to an investment's ranking in the capital structure of the entity.

Redeemable / Non redeemable


A bond which the issuer has the right to redeem prior to its maturity date, under certain conditions.

Non redeemable

A bond which the issuer does not have the right to redeem prior to its maturity date.

Repurchase agreement (Repo)

A contract where a seller of a security agrees to buy the security back from a buyer at a later date for an agreed price.

Reserve bank information and transfer system (RITS)

An electronic system for the settlement of Commonwealth Government securities.

Reserve Bank of Australia (RBA)

Australia's central bank combining the roles of financial system supervisor, banker and manager of monetary policy. The RBA has the responsibility of ensuring that its monetary and banking policies add to the stability of the Australian economy and to the welfare of the community. The RBA has a responsibility to protect the deposits of the Australian banks and has the power to regulate bank lending and interest rates and to influence banks" asset holdings. The RBA is an independent entity of the Australian Government separate from the Government to eliminate political influences from monetary policy which conflict with the long term objectives of a stable economy.

Residential mortgage backed securities (RMBS)

A pool of residential mortgages. See also "MBS" and "ABS".

Retail investor

A retail investor is an adaptation of the term retail client defined in the Corporations Act 2001, that is, an investor who receives a financial product or financial advice is a retail investor unless sections 761G (5), (6) and (7) or section 761GA apply (these provisions relate to wholesale investors a term synonymous with wholesale client used in the Corporations Act 2001). See also "Wholesale investor", "Sophisticated investor" and "Professional investor".


The amount earned on an investment or made on a transaction (realised or unrealised) relative to the amount of money invested. Generally assessed as yield to maturity.


All investments carry risk. It is a measure of the variability of returns from an investment. Risks include credit risk, interest rate risk, liquidity risk, economic risk, systemic risk and maturity risk.


Reserve Bank Information and Transfer System


Residential Mortgage Back Security

Roll over

The renewal of a loan facility or continuity of a deposit or bond holding at each maturity date.


Real Time Gross Settlement

Running yield

The interest rate on an investment expressed as a percentage of the capital invested. It takes no account of the capital accumulated. It is used to describe the income investors receive from their portfolio as a percentage of market value of the securities.


Standards & Poor's

Seasoned bonds

Wholesale bonds that have been in circulation for more than 12 months from the date of issue.

Secondary market

The financial market where previously issued securities and financial instruments such as stocks, bonds, options and futures are bought and sold. The major stock exchanges are the most visible example of liquid secondary markets.


Securities are defined in section 92 of the Corporations Act 2001 to include:

  • debentures, stocks or bonds, issued by a government
  • shares in, or debentures of a body such as a corporation
  • interests in a managed investment scheme

The process through which an issuer creates a financial instrument by combining financial assets and then marketing different tiers of the repackaged instruments to investors. The process can encompass any type of financial asset and promotes liquidity in the marketplace.

Self managed super

Self Managed Super Funds (SMSFs) are super funds where the members are also the trustees of the fund, generally established for a small number of individuals and regulated by the Australian Taxation Office. A SMSF typically has four or less members, and if using a corporate trustee then the members are directors of the company. Trustees of superannuation funds have total control over the fund and investment strategy.

Senior debt

Senior debt is a class of corporate debt that has priority with respect to interest and principal over other classes of debt (except senior secured debt) and over all classes of equity by the same issuer. A company has no ability to defer coupon payment to senior or subordinated debt holders.


Settlement (of securities) is the process whereby securities or interests in securities are delivered, usually against payment, to fulfil contractual obligations. Usually settlement is preceded by trading, which involves entering into contracts of sale and purchase.


Self Managed Super Fund

Self Managed Super Funds (SMSFs) are super funds where the members are also the trustees of the fund, generally established for a small number of individuals and regulated by the Australian Taxation Office. A SMSF typically has four or less members, and if using a corporate trustee then the members are directors of the company. Trustees of superannuation funds have total control over the fund and investment strategy.

SMSF Strategies

SMSF strategies are written plans for a Self Managed Super Fund, outlining a fund’s investment objectives and how they can be achieved.  The investment framework is followed by the trustees when making investment decisions, in order to maximise members’ superannuation benefits for their retirement.

Sophisticated investor

Someone who meets certain requirements of the Corporations Law

2001 including:

  • having obtained an accountant's certificate dated no more than two years ago that the client:
    • has net assets of at least $2.5 million, or
    • has a gross income for each of the last 2 financial years of at least $250,000
  • the purchase price of the product is at least $500,000

See also "Retail investor", "Wholesale investor" and "Professional investor".


Special Purpose Vehicle


Security Reference Number

State government bonds (Semis)

State government bonds are debt securities issued by or on behalf of the state and territory governments of Australia. State governments issue bonds to meet their financing requirements. Each of the state issuers typically has five to ten bonds outstanding at any one time. State government bonds typically carry a high credit rating (between AA / Aa and AAA / Aaa) reflecting the credit worthiness of the underlying state governments. They are also known as semi-government bonds.

Step-up securities

Where the coupon is typically increased by the step-up margin, subject to a specific trigger for example a credit event, banking covenants or election by the issuer not to call or redeem a certain security. Subordinated debt and hybrid securities often have a step up if the issuer decides not to call.

Subordinated debt

A bond or loan that ranks below senior debt, loans and creditors. In the event of a wind-up (insolvency) of an issuer, subordinated debt is not paid until all senior debt and unsecured creditors are paid first. See the graph shown under "Equity" for where subordinated debt sits in the capital structure.


A financial agreement to exchange one set of cash flows for another. A common swap in fixed income markets is an exchange of a fixed interest rate for a floating interest rate.

Synthetic security

Any combination of financial instruments producing a market instrument with different characteristics than could otherwise be achieved, for example, higher yield, better liquidity or interest rate protection. These securities mimic conventional financial instruments that may or may not be available to investors. Most deals are private placements involving two investors and usually are created through interest rate swaps, for example, creating a synthetic floating rate note by matching a fixed rate bond and an interest rate swap.


Length of the investment. Time in days months or years from the investment date till the maturity date.

Term deposits

These are non-tradable fixed income investments usually with maturities ranging anywhere from a month to five years or even more. When a term deposit is created, the lender (investor) understands that the money can only be withdrawn after the term has ended. If the investor wishes to withdraw the money at an earlier date, they may be charged a fee for obtaining the funds prior to maturity. Investors should read the terms and conditions of a term deposit investment thoroughly before investing their funds.


Tax File Number

The bond market

The bond market, a subset of the fixed income market, is a financial market where participants can either issue and buy new bonds (primary market) or buy and sell bonds (secondary market). This can be classified into more specific bond markets, such as those that issue and trade corporate bonds or government bonds.

While some bonds are listed and can be traded in Australia over the ASX, the vast majority of bonds are traded via the over-the-counter (OTC) market. This means that in order to buy and sell bonds, investors must find a broker who matches buyers and sellers in the market – a service provided by FIIG. 

Tier 1 capital

Capital that must be held by banks to meet regulatory requirements, including; share capital, other non-redeemable capital and reserves.

Trade / Switch

An idea to trade or switch an investment for greater return or lower risk or vice versa.

Trading margin

The margin above a variable market indicator (for example BBSW or LIBOR), where a floating rate security is trading in the secondary market. It is the effective margin you will receive on a FRN if you buy it at the current price and hold it to maturity.


Is a term used to describe a specific class of bonds within an offering wherein each tranche offers varying degrees of risk and return to the investor.

Treasury inflation protected securities (TIPS)

A US Department of Treasury product which increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater. TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal, so, like the principal, interest payments rise with inflation and fall with deflation. TIPS are the same as CIBs.

Trust deed

A document conveying title to trust property to the trustee and setting out the purpose for which a trust has been formed, the rights and obligations of the trustee, the trust's manager and the trust's beneficiaries. The trust deed lays down the rules within which the trust must operate, dictates its investment guidelines and describes how benefits will accrue to the beneficiaries (such as unit holders) under the trust.

UBS composite bond index

A daily market value-weighted accumulation index consisting of approximately 185 fixed interest securities issued by Australian Commonwealth and state governments" guaranteed treasury corporations, semi-government authorities and investment grade corporate issues.

Unsecured note

A bond or a note that has no security attached and repayment is reliant on the integrity or credit quality of the issuer.

There are no results under "V"

Wholesale investor

Under the Corporations Act 2001, wholesale investors include sophisticated investors and professional investors but not retail investors. See "Sophisticated investor", "Professional investor" and "Retail investor".


A term used to describe the liquidation of the assets of a company, the payment out of the proceeds of the liquidation and the eventual deregistration of the company.

Wrapped bonds

A wrapped bond is a security issued by a company and then insured by a third party, most commonly an insurance company, which provides a guarantee to the investors that if the underlying issuer fails to pay principal or interest that the insurer or wrapper will make such payments. Such bonds usually attempt to enhance the credit rating of the issuer thereby reducing the cost of borrowing for the issuer.

Write down

Reducing the book value of an asset because it is overvalued compared to the market value. This is generally shown in the company's income statement as an expense, reducing net income.

There are no results under "X"

Yield curve

A graph showing the relationship between yield to maturity and time to maturity.

Yield to maturity

The return an investor will receive if they buy a bond and hold the bond to maturity. It refers to the interest or dividends received from a security and are usually expressed annually or semi-annually as a percentage based on the investment's cost, its current market value or its face value. Bond yields may be quoted either as an absolute rate or as a margin to the interest rate swap rate for the same maturity.

It is a very useful indicator of value because it allows for direct comparison between different types of securities with various maturities and credit risk.

Note that the yield and coupon are different.


Yield to Maturity

Zero coupon bond

A bond that pays no coupon, has a single cash flow at maturity and is traded at a discount to face value.

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