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Glossary of Terms

Learn definitions of language associated with fixed income and money market investing through our extensive Glossary of Terms.

# | A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z 
 

#
Term
Definition
1-Day Yield An annualized net yield for the day listed.  It is calculated by multiplying the daily dividend factor by 36,500 and dividing by the NAV.
7-Day Distribution Yield The 7-Day Distribution yield is the average total return over the previous seven days. It is the Fund's total income net of expenses, divided by the total number of outstanding shares. This yield includes capital gain / loss distribution.
30-Day Yield Calculated by dividing the net income per share for the 30 days ended on the date of the calculation by the offering price per share on that date.  The figure is compounded and annualized. 
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A
Term
Definition
AAA-rated

Money Market Funds rated AAA are judged to be of an investment quality similar to AAA-rated fixed income obligations, meaning they are considered to be of the highest quality. The highest MMF ratings by the top three ratings agencies are: AAA/V1+ with Fitch, AAAm with Standard & Poor’s, and Aaa/MR1+ with Moody’s.

Account Position The balance of an account.  This title refers to a client's current position in a money market fund.
Accrual The amount of income earned in a mutual fund. Dividends are considered accrued from ex-dividend date to receipt. The accrual is tracked in "daily accrual" funds which typically pay out the accrued dividend to shareholders at the end of each month.

Agency Mortgage-Backed Security (MBS)

An Agency Mortgage-Backed Security is a financial investment instrument that is created by securitizing the underlying asset, such as a loan provided to individuals or companies to fund a purchase of a home or building, and is guaranteed by a governmental agency, such as Fannie Mae, Freddie Mac or Ginnie Mae.

Agency Securities Debt obligations guaranteed or issued and guaranteed by the U.S. or other government-sponsored entities. In the U.S., government-sponsored entities issue discount notes (with maturities ranging from overnight to 360 days) and bonds (e.g., Ginnie Mae). Agency securities are exempt from SEC registration and, in some cases, from state and local income taxes.
Asset-Backed Security (ABS)

A security that is backed by a loan, lease or receivables against assets other than real estate and mortgage-backed securities. For investors, asset-backed securities are an alternative to investing in corporate debt.

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B
Term
Definition
Bloomberg Bloomberg L.P. is an information services, news and media company that provides broker/dealers with financial news and data, analytics, electronic trading, straight-through processing tools, and real-time historical financial data.
Blue Sky Laws Laws enacted by various states to protect investors. Although the specifics of these laws can vary from state to state, they generally require sellers of new stock issues or mutual funds to register their offerings. In addition, sellers are required to provide financial details on each issue so that investors can base their judgments on relevant data. In the case of sales outside the U.S., this term refers to the ability to promote a security in the relevant jurisdiction.
Bond Debt issued for a period of more than one year, that requires the issuer to pay the purchaser a specified interest rate, usually at specific intervals (i.e. every six months), and to repay the principal amount at maturity. Bondholders have an "IOU" from the issuer; however they have no corporate ownership privileges, such as voting rights, as stockholders do.
Bond Anticipation Notes (BANs) Similar to TANs, RANs and TRANs , BANs are fixed rate securities which typically have a maturity of 397 days or less. BANs are sold in anticipation of receiving proceeds from another bond issue to be sold at a later date. BANs can also be secured by the full faith and credit of the issuer (i.e. the issuer’s taxing power). BANs are typically used for interim financing.
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C
Term
Definition
Cash Management A strategy for investing cash and other liquid assets to find the optimal combination of security, risk diversification, liquidity, and returns.
Certificates of Deposit A debt instrument issued by a bank that will pay interest— periodically or at a maturity—and principal when it reaches maturity. A bank’s creditworthiness is rated by impartial agencies such as Moody’s and Standard & Poor’s.
Commercial Paper Issued by a corporation, a commercial paper is an unsecured, short-term debt instrument, typically used for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on such securities rarely range any longer than 270 days. This type of debt is traditionally issued at a discount, reflecting prevailing market interest rates.
Corporate Bond A corporate bond is a debt security issued by a corporation backed by the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company's physical assets may be used as collateral for bonds. Corporate bonds are considered higher risk than government bonds and hence interest rates are generally higher.
Cumulative Total Return Actual, non-annualized performance over a given period of time. (Ending NAV - Beginning NAV + Distributions) / Beginning NAV.
Current Yield The annual return on the amount paid for a bond. Derived by dividing the bond’s interest payment by its purchase price.
CUSIP The Committee on Uniform Securities Identification Procedures (CUSIP) assigns a number identifying stocks, registered bonds and mutual funds. Brokers and dealers will use a security's CUSIP number to get further information about that security. The CUSIP number will also be listed on any trading confirmation tickets. The CUSIP system makes it easier to settle and clear trades.
Cut-Off Times The deadline by which a trade may be made or a transaction initiated. These times can differ based on such variables as the type of transaction, the firm making the transaction, etc. For example, a foreign exchange can have a different cut-off time than a domestic swap because of time zone differences.
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D
Term
Definition
Daily Dividend Fund An investment in which dividends are earned each day and, generally, paid monthly.
Daily Factor The annual interest rate of a specific money market instrument divided by 365.
Diversification A risk management technique involving the spreading of an investment portfolio among multiple vehicles with varied levels of risk, industry and geographic exposure.
Dividend Factor The annual interest rate of a specific money market instrument divided by 365. When multiplied by the account balance of each client, will show the daily dividend accrued for each client.
Duration

The method of determining a bond's price sensitivity given a change in interest rates. The duration for fixed income securities is calculated by determining the price movement due to a 100 basis point change in market interest rates. This calculation incorporates the change in value of any embedded options that exist.

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E
Term
Definition
Enhanced Cash Products Cash management vehicles that are not genuine money market funds but may refer to “money markets” in their naming conventions, often using different instruments and targeting different risk and return profiles than bona fide MMFs. Enhanced cash products typically have longer maturities (1-5 years), do not adhere as strictly as MMFs to the highest quality guidelines, and are suitable for investors with longer investing time horizons willing to incur greater risk for the expectation of higher returns.
Expense Ratio The operating costs of a Money Market Fund expressed as a percentage of the fund’s average net assets for a given time period.
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F
Term
Definition
Federal Funds Rate The interest rate at which banks with excess federal funds lend to other banks. This rate is generally seen as one of the primary indicators of the direction of interest rates as it is reset daily.
Fitch AAA/V1+ Ratings Money market funds have the highest credit quality and safety of principal. Fund management's experience, coupled with fund policies and procedures, indicates safety is extremely strong. The V1+ rating is Fitch's highest volatility rating and is reserved exclusively for stable NAV funds. Ratings are subject to change and do not eliminate the risks of investing.
Floating rate notes (FRNs) Debt instruments with variable interest rates. The coupon rate of these notes is pegged to a benchmark floating rate, typically LIBOR, and refixed quarterly to three-month LIBOR or semiannually to six-month LIBOR rates.
Fund Position A reflection of the total balance for the underlying fund or account positions within a particular money market fund.
Fund Symbol A "short-hand" abbreviation established for each fund that is used universally when referring to the fund. These symbols can be found in the prospectus.
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G
Term
Definition
Government-backed Securities Debt instruments issued by government and supra-natural agencies, offering investors an additional degree of safety.
Government Paper Government Paper includes debt securities that are issued or guaranteed by a sovereign government. Because of government paper of a nation is generally perceived as the least risky debt securities in that country it will offer investors lower yields compared with debt of a similar maturity issued by other entities in that nation.
Government Security A government debt obligation (local or national) backed by the credit and taxing power of a country with very little risk of default.
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I
Term
Definition
Institutional Money Market Funds Association (IMMFA) A trade body representing European providers of AAA-rated money market funds. IMMFA was established on 14 June 2000 and launched its Code of Practice in February 2003 to ensure members offer high quality products and service to investors.
Investment Grade Bond A relatively safe bond with a credit rating of BBB or above from an independent rating service such as Standard and Poor’s.
ISIN International Securities Identification Number. A unique international code which identifies a securities issue. Each country has a national numbering agency which assigns ISIN numbers for securities in that country.
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L
Term
Definition
Letters of Credit (LOC) Obligates the provider of the letter of credit to pay the holder par plus accrued interest in the event that VRDNs are tendered and cannot be remarketed (i.e. the LOC is drawn upon). The letter of credit provider is also obligated to pay principle and interest in the event the issuer defaults. The rating of the security reflects the rating of the LOC and not that of the underlying issuer. The guarantee is unconditional.
Liquidity The ability of an asset to be quickly and easily converted into investable cash without any loss of value.
Liquidity Facility Obligates the provider to pay the holder par plus accrued interest in the event that a VRDN is tendered and cannot be remarketed. The obligation is not unconditional. Typically the liquidity provider is a bank or the issuer itself. If the liquidity facility is drawn upon and the provider cannot pay this is an event of default.
London Interbank Offered Rate (LIBOR) One of the most important financial benchmarks in the world, LIBOR is a daily reference rate based on the rate at which banks borrow unsecured funds from one another in the London wholesale money market. LIBOR and other short-term indicative interest rates—such as the Fed Funds rate in the US—are typically used to benchmark the performance of Money Market Funds.
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M
Term
Definition
Maturity Date The date on which the final payment of a debt instrument is due and payable.
Money Market Instrument A highly liquid short-term debt instrument with a high credit rating. Examples include certificates of deposit, commercial paper, banker's acceptances and Treasury bills.
Monthly Average Yield The average daily return over the course of one month.
Moody's Aaa-mf Rating Very strong ability to meet the dual objectives of providing liquidity and preserving capital.
Municipal Put Bonds A security which has an effective maturity of 397 days or shorter. The coupon is fixed over a predetermined amount of time. Primarily used to manage duration and yield.
Taxable Muni Bonds A debt obligation of a US state or local government that generally supports governmental needs or special projects. A taxable Municipal Bond is a debt security whose returns are subject to taxes at the local, state or federal level, or some combination thereof.
Tax-Free Muni Bonds Unlike taxable municipal bonds, tax-free Municipal bonds are exempt from federal taxes and from most state and local taxes, especially if the investor lives in the state in which the bond has been issued.
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N
Term
Definition
NASDAQ National Association of Securities Dealers Automated Quotation System. NASDAQ is a computerized system that provides brokers and dealers with price quotations for securities and mutual funds traded over the counter as well as New York Stock Exchange listed securities.
National Association of Insurance Commissioners (NAIC) An organization of insurance regulators from the 50 states, Washington D.C. and the four U.S. territories that provide a forum for the development of uniform insurance policies.
Net Asset Value (NAV) A money market fund’s per-share value. This amount is derived by dividing the total value of all the securities in the fund’s portfolio, less any liabilities, by the number of fund shares outstanding.
Non-Agency Mortgage-Backed Security Unlike the Agency MBS, this type of financial investment instruments is generally issued by private issuers and is not guaranteed by a governmental agency.
NRSRO Nationally Recognized Statistical Rating Organization. The formal term describes credit rating agencies that provide ratings used by the U.S. government and financial services firms in several regulatory and investment areas. Ratings provided by NRSROs are used frequently by investors and as benchmarks by federal and state agencies. 
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P
Term
Definition
Principal The amount of money invested in the bond. The principal does not equate to the face value of the bond as they are bought and sold on the secondary market at prevailing prices.
Prospectus A formal written offer to sell securities. A prospectus contains material information for a particular fund, including performance history, manager(s), objectives, risk factors, financial data, associated costs and fees, etc. A prospectus should be read carefully before investing.
Proxy Authorization, whether written or electronic, that shareholders' votes may be cast by others in connection with a shareholder meeting. Shareholders have the option to vote "yes" or "no" on any proposal. However, they can, and often do, give management their proxies, delegating the right and responsibility to vote their shares as indicated on the proxy.
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R
Term
Definition
Repo (overnight) Rate The rate of a repurchase agreement in which securities are sold provided that they will be purchased the next day.
Repurchase Agreements (Repos) An agreement between a seller and a buyer whereby the seller agrees to repurchase the securities at an agreed price and, usually, at a stated time. Repos are, in essence, short-term loans—usually for terms of less than two weeks and often as short as one day.
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S
Term
Definition
SEC 30-Day Yield This is calculated by dividing the net investment income per share (as defined by the SEC) earned by the fund over a 30 day period (ending on the stated month-end date) by the maximum POP (price-of-purchase) per share of the fund on the last day of the period. This yield does not necessarily reflect income actually earned and distributed by the fund. This yield does not allow for the inclusion of capital gains or losses.
Sovereign Bond A bond issued by a national government and denominated in a foreign currency.
Standard & Poor's AAAm or AAAm-G Ratings Safety is excellent. Superior capacity to maintain principal value and limit exposure to loss. The G designation following the rating indicates that the portfolio is invested in direct obligations of the U.S. Government. Ratings are subject to change and do not eliminate the risks of investing.
Standardized 7-Day Current Yield The Standardized 7-Day Current Yield is the average income return over the previous seven days. It is the Fund's total income net of expenses, divided by the total number of outstanding shares. The yield may differ slightly from the actual distribution rate of a given portfolio because of the exclusion of distributed capital gains or losses which are non-recurring. The SEC Yield is a required yield to quote to clients. This yield does not allow for the inclusion of capital gains or losses.
Standardized 7-Day Effective Yield The Standardized 7-Day Effective Yield is the average income return over the previous seven days, assuming the rate stays the same for one year and that dividends are reinvested. It is the Fund's total income net of expenses, divided by the total number of outstanding shares. The yield may differ slightly from the actual distribution rate of a given portfolio because of the exclusion of distributed capital gains or losses which are non-recurring. The SEC Yield is a required yield to quote to clients. This yield does not allow for the inclusion of capital gains or losses.
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T
Term
Definition
Tax-Exempt Commercial Paper (CP) Short-term obligations with maturities ranging from 1 to 270 days issued by tax-exempt issuers. Tax-exempt commercial paper is issued at par but can trade above or below par after issuance. Tax-exempt commercial paper has a fixed coupon over a set period of time which the issuer, remarketing agent and purchaser agree upon. Interest is paid at maturity. CP is primarily used to manage duration and yield.
Tax-Exempt Funds Funds designed to maximize current income, preserve capital and maintain liquidity, by investing in municipal obligations issued by or on behalf of states, territories and possessions of the U.S. The interest is exempt from regular federal income tax.
Tax/Revenue Anticipation Notes (TANs/RANs/TRANs) A tax-exempt fixed rate security which typically has a maturity of 397 days or shorter. These notes are sold by the issuer in anticipation of tax and/or revenue generated from the borrowed monies.
Tender Option Bonds (TOBs) A tender option bond is a type of VRDN where a long term bond is placed into a trust. Floating rate securities are created from the trust. These floating rate securities function like a VRDN in that the coupon resets every 1-7 days. Additionally, there is a liquidity feature which allows these securities to be tendered on a 1-5 business day settlement. A unique feature of TOBs is that when the trust is unwound and the underlying bonds are sold a gain may be generated. This gain is distributed to the TOB holder on a pro rate basis.
Time Deposits A deposit in an interest-paying account that requires the money to remain in the account for a specific length of time, often overnight.
Treasury Bill (T-bill) Debt obligations of the U.S. Treasury, backed by the full faith and credit of the federal government, having original maturities of 1 year or less.
Treasury Bond Debt obligations of the U.S. Treasury, backed by the full faith and credit of the federal government, having original maturities of greater than 10 years.
Treasury Note A marketable US government debt security with a fixed interest rate and a maturity between two and 10 years that is backed by the full faith and credit of the federal government. Treasury notes can be bought either directly from the US government or through a bank.”
Tri-party Repurchase Agreement (tri-party repo) This involves a custodian bank acting as an intermediary between the two parties in a repurchase agreement. The tri-party agent is responsible for the administration of the transaction including allocation, marking to market, and substitution of collateral.
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U
Term
Definition
U.S. Commercial Paper Unsecured, short-term obligations issued by a corporation with maturities of 270 days or less, usually issued at a discount reflecting current market interest rates.
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V
Term
Definition
Variable Rate Demand Notes (VRDN) A debt instrument where a long term bond has a coupon which resets every 1-7 days. These securities have a shortening feature which allows the holder to put (i.e. sell) the security at par1 plus accrued interest for either same day or 5 business day settlement. The liquidity feature can be provided by the issuer itself or a bank and can be in the form of a liquidity facility or letter of credit. These securities generally trade at par.
Volatility The level of risk associated with an investment as measured by the standard deviation from the expected return.
 
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W
Term
Definition
Weighted Average Life (WAL) The money market fund’s weighted average life (WAL) is an average of the final maturities of all securities held in the portfolio, weighted by each security’s percentage of net assets. This must not exceed 120 days by SEC Rule 2a-7.
Weighted Average Maturity (WAM) The money market fund's weighted average maturity (WAM) is an average of the effective maturities of all securities held in the portfolio, weighted by each security's percentage of net assets. This must not exceed 60 days if the fund is rated.
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Y
Term
Definition
Yield Curve The graphical representation of the relationship between bond yields and maturity for securities with the same credit quality. The curve will be positively sloped when long-term interest rates are higher than short-term interest rates. Conversely, and less common, the curve will be negatively sloped when the short-term rates exceed long-term rates.
Yield-to-Maturity The rate of return anticipated on a bond if it is held until the maturity date. YTM is considered a long-term bond yield expressed as an annual rate. The calculation of YTM takes into account the current market price, par value, coupon interest rate and time to maturity. It is also assumed that all coupons are reinvested at the same rate. Sometimes this is simply referred to as "yield" for short.
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