Patrick Luby, ILP


Municipal Bond Glossary 
Accreted value 
Unlike a current interest bond which pays out interest on a regular basis, a zero coupon bond compounds it's value as it approaches maturity, when its accreted value will be par ($100.00), effectively paying all of the interest earned, at maturity date. The rate at which it increases is a function of it's interest rate. The accreted value is the compounded value for a zero coupon bond for a particular day. The accreted value may or may not be the same as the market value. On taxable zero coupon bonds, taxes may be due each year on that year's accretion, rather than when the bonds mature. See also Par and zero Coupon Bond.
Accrued interest
Interest which has been earned, but which has not yet been paid. When bonds are traded (bought or sold), they trade 'with accrued interest', meaning that the portion of interest which will be paid on the next coupon date which was earned by the seller, is paid by the buyer. Interest is calculated from either the dated date, first coupon date or the most recent coupon date-whichever is later. The buyer then keeps the entire amount of the coupon payment. See also Coupon, Dated Date, First Coupon and Interest Rate.
Actual / Actual
Calendar used to calculate interest on some short term munis. (Actual number of days in the month, actual number of days in the year.) See also 30 / 360.
Ad Valorem Tax
Tax based on the assessed valuation of property. See also Assessed Valuation.
Advance 
Refunding 
Bonds issued to defease an older (usually higher interest rate) issue of bonds. The proceeds of the refunding issue are deposited in an escrow account with a trustee, and the escrow deposit, along with any earnings on it, will be used to redeem the older bonds either at maturity (Escrowed to Maturity) or at a call date (Pre-Refunded). (Pre-refunded bonds are not necessarily escrowed to the first call). Funds deposited in an escrow are usually-but not always--invested in U.S. Treasuries. An issue of new money bonds(the first issue of bonds which raise funds for a project) issued before 1986 may be Advance Refunded no more than twice. (In other words, the Refunding issue may be refunded, but the second refunding issue may not be advance refunded. New money bonds issued after 1985 may be refunded only once. In some case, bonds may only be Current Refunded. For more detailed information, consult the J.C. Bradford & Co. publication "Fundamental Federal Tax Aspects of Municipal Finance." See also All Calls Defeased, Defease, Escrowed to Maturity, Pre-Refunded Bonds, Crossover Refunding, Current Refunding..
After Tax Yield
(ATY)
The rate of return to the investor which takes into account the payment of capital gains on bonds purchased at a market discount. Sometimes also called "True Yield". See also Yield to Maturity.
Agency
A governmental subdivision incorporated to perform a public service. May or may not have taxing authority. Most bond issuing agencies pledge only specific revenues to the repayment of bonds which they issue. (Such as Tennessee Housing Development Agency bonds which are payable solely from revenues received from their mortgage portfolio.) See also authority.
All Calls Defeased 
Indicates that the issuer has specifically waived the right to exercise a call feature on a refunded issue. (This language did not appear on issues refunded before about 1995.) This is relevant only on issues that are Escrowed to Maturity or Pre-Refunded to a call date other than the first call date.
All Or None (AON)
A block of bonds which are offered for sale, but which the trader does not wish to break up by selling in pieces. Hence, they are offered 'all or none.' 
Allocation
The quantity of bonds an underwriter, selling group member or customer receives in a primary market offering (typically received within 24 hours of the end of the order period). See also Order Period and Priority.
Alternative Minimum Tax (AMT)
A method of calculating federal income tax. Interest on some private activity municipal bonds is subject to the AMT tax if the bond holder calculates their federal income tax using the AMT. Consult with your CPA or other tax advisor regarding the application of AMT rules to your circumstances. See also AMT Bonds and Private Activity Bonds. 
AMBAC 
Ambac Assurance Corporation
Subsidiary of Ambac Financial Group, Inc., specializing in municipal bond insurance. AMBAC is publicly owned (NYSE: ABK). Bonds insured by AMBAC are eligible for Triple-A ratings by Moody's, S&P and Fitch. See also Bond Insurance and Ratings.
American Capital Access (ACA)
Municipal bond insurer which opened October 6, 1997. Bonds insured by ACA are eligible for "A" ratings from Duff & Phelps, Standard & Poor's, and Fitch Investors Service. ACA is seeking to create a niche in the municipal bond market for insured bonds which pay more yield than "AAA" insured bonds. 
AMT Bonds
Bonds which pay interest that is subject to the alternative minimum tax (AMT). These are 'private activity bonds', meaning that more than a minimum percentage of the bond proceeds benefit a non-public entity. (For instance, certain airport revenue bonds, which benefit an airline.) Under present law, AMT bonds are included in the income tax calculation only if the taxpayer is subject to the AMT. Owning AMT bonds will not make a taxpayer subject to the AMT. Because of the potential tax implications, AMT bonds trade at yields higher than non-AMT bonds. Consult with your CPA or other tax advisor regarding the application of AMT rules to your circumstances. See also Alternative Minimum Tax, Private Activity Bonds.
AON
See All Or None
Ask
See Offer
Assessed Valuation
Valuation placed on property for purposes of taxation. May or may not be the same as market valuation. See also Ad Valorem Tax.
After Tax Yield (ATY)
Yield on a discount bond after taking into account any capital gains tax on Market Discount. See also Market Discount.
ATY
See After Tax Yield
Authority
A governmental entity incorporated to perform a public service, generally to finance, construct, own and/or operate a particular project(s). Most bond issuing authorities are not able to levy taxes, and pledge only specific revenues to the repayment of bonds which they issue. See also Agency.
Average Life
The date on which one-half of the principal on a bond or bond issue remains outstanding. Most often used in reference to bonds subject to sinking fund redemption. See also Sinking Fund and Super Sinker.
Bank Qualified (BQ)
Bonds from issuers who issue less than $10 million in bonds per year may be designated as "bank qualified", which means that financial institutions (banks) may invest in them and take advantage of a reduced TEFRA disallowance. (Prior to the passage of the TEFRA Act in 1986, banks were allowed to deduct the interest paid on funds used to purchase municipal bonds as well as enjoy the tax exempt interest earned on those bonds. TEFRA eliminated the deduction for owning most municipal bonds, with the exception of small issues [i.e., Less than $10 million per year per issuer], in order to enable banks to support their local communities thus providing easier access to the capital markets for small issuers.) See also TEFRA.
Basis
Price of a security expressed in yield. See also Yield to Maturity.
Basis Point
One one-hundredth of one percent. For example, if a bond's yield is 6.50% and it decreases by 50 basis points, the new yield is 6.00%.
Bearer Bond
A bond which is payable to the holder. These bonds have coupons attached which the holder clips and turns in to the paying agent to receive interest payments. Long term (more than 1 year maturity) bonds have not been issued in bearer form since July 1983. See also Book Entry Only and Registered Bond.
BEO
See Book Entry Only
Bid
An offer to pay a specific price for a security. Also known as a firm bid. When a trader makes a bid on a bond, he is obligated to honor that bid, although the owner is not obligated to sell. (There are rules of protocol that establish how long a trader is obligated to honor a bid.) See also Offer and Workable.
Blue Sky Law
A general term referring to various state laws enacted to protect the public against securities fraud. These laws describe the method and form of registration of securities in each particular state.
BOE 
Board of Education
Most school districts have the ability to levy ad valorem property taxes in order to secure bonded indebtedness.
Bond
A contractual obligation to fulfill a promise. See also Municipal Bond.
Bond Counsel
A lawyer or law firm which renders an opinion as to the legality of a municipal bond issue as well as its tax exempt status. See also Legal Opinion.
Bond Indenture
The contract between the borrower (the issuer) and the trustee (which acts on behalf of the bondholders) which stipulates the obligations of the borrower to the bondholders. The issuer is released from the indenture when the bonds either mature or are defeased. See also Defease.
Bond Insurance
A guarantee by a third party (i.e., not the issuer) to pay interest and principal if the issuer is unable to do so. If the insurance is called upon, the bonds are not called or accelerated. The insurance provides only for the timely payment of principal and interest, when due (e.g., coupon payments and principal at maturity). Insurance policies extend for the life of the bond and are not cancelable. See also AMBAC, American Capital Access, Connie Lee, MBIA, FGIC, FSA, PSF, PUF and Letter of Credit.
Bond Years
The number of bonds in an issue multiplied by the number of years each bond is outstanding. One bond (1M) due in 5 years would be 5 bond years. See also NIC.
Book Entry Only
Bonds which do not have any physical certificate issued, and therefore must be held in an account of a firm which is a member of DTC. See Also Bearer Bond, Registered Bond and DTC.
BQ
See Bank Qualified
Broker's Broker
A firm which serves as an intermediary between dealers. A broker's broker does not own or position bonds, but attempts to bring buyer and seller together to earn a commission for the effort. (Much the same as a real estate agent.) Also called an eighth broker, from the days when brokers charged 1/8th of a point commission. Generally, they now work for less than that, depending on the size of the block of bonds, but, usually it's seventy five cents per thousand dollars face value. See also Dealer.
Broker Dealer
See Dealer.
Bullet Maturity
A long term bond issue with only one maturity. This structure is usually only used on PCR's and IDR's. A bullet may or may not be subject to a sinking fund redemption. See also IDR, PCR and Sinking Fund.
Call / Callable
A bond which can be redeemed by the issuer before maturity. Municipal bonds are generally issued with eight to ten year call protection. (That is, they cannot be 'called' away from the bond holder until the call date arrives.) Call features can be exercised with or without a premium, depending on the provisions established when the bonds are issued. See also Extraordinary Call, Optional Redemption And Mandatory Redemption.
Call Premium
A percentage of the principal amount of a bond which is paid by the issuer when they call bonds.
Capital Guaranty Insurance
A municipal bond insurer which was bought by FSA in December 1995. See also FSA and Bond Insurance.
Capitalized Interest
The portion of bond proceeds which are set aside to provide for the payment of interest until the project being financed is up and running and able to cover debt service from revenues. Not all bond issues capitalize interest.
CapMAC
CapMAC Holdings, Inc. is a municipal bond insurer which was acquired by MBIA Inc.(NYSE-MBI), effective February 18, 1998. Through a reinsurance arrangement, the full resources of MBIA back the outstanding insurance policies of CapMAC. See also Bond Insurance and MBIA.
Certificates 
Municipal securities described as "Certificates" are generally subject to annual appropriation, and therefore also subject to extraordinary call or default in the case of non-appropriation. COP's and other Certificates trade at higher yields than bonds of comparable quality and maturity, and rarely trade at much of a premium.
Certificates of Participation (COP) - A certificate evidencing pro rata participation in a specific pledged revenue stream, usually a lease, and always subject to annual appropriation .
Certificates of Indebtedness (COI) - Similar to a COP, except the security is usually not a lease, but simply a promise to appropriate funds sufficient to pay debt service. 
Certificates of Obligation (CO) - Similar to a COI in that the security is a promise to appropriate funds sufficient to pay debt service. 
Certificates of Obligation issued in the state of Texas. CO's issued in Texas have a pledge of both taxes and revenues from certain capital projects. The issuing municipality is required to levy sufficient taxes to cover debt service. See also General Obligation.
Closing Date
The date on which a new issue is delivered to the underwriters, and the underwriter re-delivers the bonds to investors. See also Settlement Date.
CO-Manager
A firm which shares in the risk, reward and ownership of distributing new issue bonds. See also Senior Manager.
Competitive Sale
The process by which new issue bonds are sold at a sealed bid auction. A sealed bid auction is an auction at which bidders enter their bids in a sealed envelope before the sale time. After the deadline, all the bids are opened and the highest bidder is determined according to the criteria advertised in the Notice of Sale. Unlike an open outcry auction, the losing bidders in a sealed bid auction do not have the opportunity to raise their bids. The highest bidder is the firm or group of firms which offers the lowest interest cost to the issuer for their bonds. Interest cost is computed in one of two ways: NIC (Net Interest Cost) or TIC (True Interest Cost.). See also Negotiated Sale, NIC, TIC and Notice of Sale.
Connie Lee 
A municipal bond insurance company chartered by the federal government in 1987 to insure higher education and teaching hospital bonds. The company has been purchased by Ambac Assurance Corporation. See also Bond Insurance and AMBAC.
Convertible Zero
A bond which is issued at a deep discount and compounds as a zero interest bond until a specified conversion date when the accreted value is 100% of the par amount. The bond then begins earning interest which will be paid out semi-annually like an ordinary current interest bond. Also known as GAINS and FIGS. See also Current Interest Bond and Zero Coupon Bond.
Convexity
The rate of change of duration as yields change. See also Duration.
Coupon
The stated rate of interest on a bond, usually paid semi-annually. It formerly referred to the actual coupon affixed to bearer bonds which were clipped and cashed on the interest payable dates.
Coverage
See debt Service Coverage Ratio.
Crossover
Refunding 
A method of refunding bonds which provides that when the call date on the old bonds arrives, the issuer may direct the redemption of either the old bonds or the crossover refunding bonds. Until that date, the old bonds are still paid from their original pledged source of revenue. Because of the element of uncertainty about the probability of the old bonds being called, crossover refunded bonds trade more like callable bonds than Pre-Refunded bonds. See also Advance Refunding, Current Refunding and Pre-Refunded.
CSD 
Consolidated School District.
Current Interest Bond
A bond which pays interest at regular intervals, as opposed to a zero coupon bond.
Current Refunding
Refunding bonds which are sold close to the time when older bonds become callable. The proceeds of the new issue of bonds are used to fund the call of the old bonds. See also Advance Refunding and Crossover Refunding.
Current Yield
A measure of the cash flow of a bond relative to its market value, at the current point in time. Current Yield is calculated by dividing the coupon rate by the market price. The calculation for current yield does not distinguish between return of principal and interest earned, or take into account potential capital gains on discounts, the premium paid above the maturity amount or reinvested interest. Current Yield is not an accurate measure of the lifetime performance of an investment. See also Distribution Yield, SEC Yield and Yield To Maturity.
CUSIP Number
A unique number which is assigned to most publicly traded individual securities by the Committee on Uniform Security Identification Procedures. A CUSIP number is needed on all trades.
Dated Date
The date on which bonds begin to accrue interest. The dated date may or may not be the same as the date of issue. See also First Coupon.
Dealer
A firm which buys bonds to maintain an inventory from which to sell to investors. Also called a Broker Dealer.
Debenture
An unsecured bond that is backed by the issuer's legally binding promise to pay.
Debt Limit
A statutory or constitutional limit on the amount of debt which an issuer may incur.
Debt Ratio
Ratio of the amount of an issuer's debt to a measure of value such as assessed valuation. See also Assessed Valuation.
Debt Service
Amount of money required for payments of principal and interest on debt.
Debt Service Coverage Ratio.
Also known as 'Coverage'. Indicates the number of times by which available revenues exceed the debt service on bonds. May be calculated based on maximum annual debt service or an average annual debt service. See also Debt Service.
De Minimus Rule
As it pertains to individual holders of municipal bonds, the de minimus rule applies to individuals and allows a small amount of Market Discount on a bond to be taxed at the capital gains tax rate. The tax treatment of Market Discount on municipal bonds was changed by the 1993 budget/tax bill. Formerly, all Market Discount was taxed at the capital gains rate. The Market Discount is now taxed at the bondholder's ordinary income tax rate, with a minimal exclusion, provided under the de minimus rule. Under de minimus, up to a maximum of 1/4 of a point of discount per full year between purchase date and maturity or sale date is taxed at the capital gains tax rate. However, once the Market Discount exceeds that amount, all of the Market Discount becomes taxable at the ordinary income tax rate. Investors should consult their tax advisor for more definitive information on how this rule impacts their tax liability. Also see Market Discount and Original Issue Discount.
Default
Failure to fulfill an obligation imposed by the bond indenture. Examples of default would be failure to disclose a material event in a timely fashion, failure to maintain a covenanted debt service coverage ratio, failure to make debt service payments, etc. See also Bond Indenture.
Defease
To satisfy the issuer's legal obligations imposed by a bond, without actually redeeming the securities. This removes the debt from being a liability of the issuer, and can usually only be accomplished by an advance refunding that Pre-Refunds or Escrows the bonds to be defeased. See also Pre-Refunded Bonds and Escrowed to Maturity.
Detachable Call
The option to exercise a call on a bond can be sold by the issuer to a third party. Bonds with detachable calls generally trade in the secondary market at slightly higher yields than non-detachable call bonds. See also Callable.
Direct Pay Letter Of Credit
See Letter of Credit
Discount Bonds
Bonds which are priced at less than their face value (par). Tax consequences may exist for purchasers or bonds priced at a discount. See also Market Discount, Par and Premium Bonds.
Distribution Yield
Distribution Yield most often refers to the 12-month historical cash flow relative to the principal amount invested in a mutual fund. Similar to Current Yield (which only measures cash flow at the current point in time), the Distribution Yield is a measure of cash flow, which will be mostly interest paid out in the period, but can also include capital gains distributions, return of principal, etc. Distribution Yield may be more or less than what the fund has actually earned in the period. Like Current Yield, Distribution Yield is not an accurate measure of the lifetime performance of an investment. See also Current Yield, SEC Yield and Yield To Maturity.
Double Barreled
Bonds which are secured by both a stream of revenue and a general obligation pledge. See also General Obligation and Revenue Bond.
Double Exempt
Securities whose interest is exempt from not only Federal income taxes, but also local taxes as well. (Some bonds may also be Triple Exempt, in the case of bonds exempt, for example, from federal, state and city taxes.)
DTC - The Depository Trust Company
An institution owned by its members that serves as a clearinghouse for securities trades. Securities do not change hands physically, but rather are moved by way of bookkeeping entries in member firm accounts. DTC trades settle in fed funds (same day money). When book entry only bonds are issued, a single certificate will be delivered to DTC, and registered under the name "Cede and Co.".
Due Date
The date on which a bond matures and the principal is to be returned to the bond holder. Also known as the maturity date. 
Duration
A measure of the present value of the lifetime cash flows on a bond. A higher duration number indicates a greater sensitivity of that bond's price to changes in interest rates. See also Convexity.
Escrowed 
To Maturity
Bonds that have been refunded and are secured by a trust account (usually containing U.S. Government securities) set up to pay directly to the bond trustee the debt service for the remaining lifetime of the bond. The issuer of the bonds is no longer liable for the bond's repayment. See also Advance Refunding, Defease and Pre-Refunded.
Extraordinary Call / Redemption
A call which is exercised because of some unforeseen or unusual event, such as a calamity, condemnation, declaration of taxability, act of God, tax law changes, mortgage prepayments on housing bonds, etc. See also Callable, Optional Redemption and Mandatory Redemption.
FED Funds Rate
The interest rate banks charge one another for overnight loans.
FGIC
Financial Guaranty Insurance Company
An insurance company specializing in municipal bond insurance. FGIC is wholly owned by General Electric. Bonds insured by FGIC are eligible for Triple-A ratings by Moody's, S&P and Fitch. See also Bond Insurance.
Fill or Kill
A situation in which an investor must execute a securities transaction immediately or cancel the order.
Final Official Statement
See Official Statement.
Firm
An option to execute a trade at a specific price. Typically, a firm is granted for one hour, with a five minute recall. When given a recall, the holder of the firm has to either execute the trade or release the option. A bid, as well as an offer, can be taken firm.
First Coupon
The initial interest payment, calculated from the dated date. Subsequent coupons are paid every six months, unless noted otherwise. See also Coupon.
Fitch IBCA, Inc.
An independent company which rates the creditworthiness of issuers. See also ratings.
Fixed Rate
An interest rate on a bond which is fixed for the life of the bond. See also Coupon, Interest and Variable Rate
FSA
Financial Security Assurance
An insurance company specializing in municipal bond insurance. FSA is owned primarily by the public (approx. 42%) and U.S. West (approx. 40%). The stock is traded on the NYSE (FSA). Bonds insured by FSA are eligible for Triple-A ratings by Moody's and S&P. They have not applied for a Fitch rating. See also Bond Insurance.
General Obligation (G.O.)
A full faith and credit pledge, made without limitation. The issuer pledges to use every means available to meet debt service requirements, including raising taxes. See also Limited Tax G.O. and Unlimited-Tax G.O.
Good Delivery
The assumptions under which municipal bonds are traded. Municipal bonds are traded under the following assumptions: bonds trade plus accrued interest unless noted otherwise; bonds are issued in multiples of $5,000; there is a 'clean' legal opinion attached to the bonds; physical trades are settled in clearinghouse (next day) funds unless otherwise specified; DTC trades are settled in same day funds. (Most trades now settle via DTC, which has slightly different assumptions.) See DTC.
Gross Debt
The total amount of a debtor's obligations. See also Net Debt.
IDB 
Industrial Development Bond
Issued by a governmental authority on behalf of a corporation. Generally secured by the corporation, or a lease with the corporation, NOT the issuing municipality.
IDR
Industrial Development Revenue Bond
Same as IDB.
Indenture
The legal document which spells out the responsibilities of the bond issuer. It is binding as long as bonds remain outstanding, or until they are defeased. See also Defease.
Insured
See Bond Insurance. 
Interest At Maturity
Interest earned is paid in full at maturity. (There are no semi-annual coupon payments.) This is a feature usually found on short term bonds and notes. See also Accreted Value.
Interest Rate
Compensation paid by a borrower to a lender to compensate for the use of money. The interest rate on a bond can either be fixed until maturity, or float, based on some agreed upon formula. Usually expressed as an annual percentage rate and paid semi-annually. See also Accrued Interest, Coupon and Yield to Maturity.
Interest Figuration
Current interest Munis are traded with accrued interest. The seller receives interest up to--but not including--the settlement date. The buyer pays that interest, and begins earning interest on the settlement date. Interest on municipal bonds is usually calculated on a 30 / 360 basis. See also 30 / 360.
Investment Grade
A bond whose credit qualities are at least adequate to maintain debt service, but which may also have some speculative qualities as well. Moody's Investors Service investment grade ratings are "Baa" and higher. Standard & Poor's are "BBB" and higher. Below investment grade ratings suggest a primarily speculative credit quality. See also Ratings.
ISD
Independent School District.
Joint Account
When two or more dealers agree to share liability (risk and reward) when distributing bonds. See also Dealer.
Legal Opinion
An opinion written by a bond attorney that a bond was legally issued by the borrower, and that the interest on the bonds is or is not exempt from federal income tax.
Letter of Credit (LOC)
A third party guarantee to pay interest and/or principal if the issuer is unable to do so. A standby letter of credit pays only if the issuer fails to do so. A direct pay letter of credit automatically funds all interest and principal payments due during the life of the LOC, and the issuer reimburses the LOC provider. Typically, letters of credit do not last for the entire life of a bond, and a provision is made to call the bonds if the LOC is not renewed.
Limited Tax G.O. 
A general obligation pledge to pay which has some statutory limit. (Most often a pledge to levy ad valorem taxes up to a specific millage rate.) See also Debt Limit and General Obligation.
Liquidity
A measure of ease of trading in the market.
Mandatory Call / 
Redemption
A call which is required by statute or the bond indenture to be exercised if some particular event takes place. See also Call / Callable, Extraordinary Call / Redemption and Optional Call / Redemption
Mandatory Put
A put on a bond which will occur unless the bond holder takes a specific action to retain the bond after the put. See also Optional Put.
Market Discount
On a bond sold below it's Original Issue Discount rate (a yield higher than the OID rate), the difference between the purchase price and the adjusted OID price. See also De Minimus, Discount Bonds and OID.
Material Event
An event involving an issuer which could affect the value of the issuer's bonds.
Maturity Date
See Due Date.
MBIA 
MBIA Insurance Corp.
An insurance company specializing in municipal bond insurance. MBIA is mostly publicly held (approx. 88%) through its parent, MBIA, Inc., traded on the NYSE as MBI. Bonds insured by MBIA are eligible for Triple-A ratings from Moody's, S&P and Fitch. See also Bond Insurance.
MF
See Multi Family Housing Revenue Bonds.
MIG Rating
The investment grade rating assigned by Moody's Investors Service to short-term notes and commercial paper. MIG stands for Moody's Investment Grade. MIG ratings range from MIG1 (the strongest investment grade) to MIG4 (the weakest investment grade). See also Moody's Investors Service and Ratings.
Moody's Investors Service
An independent company which rates the creditworthiness of issuers. Moody's is owned by Dun and Bradstreet. See also Ratings.
Multi-Family Housing Revenue Bonds
Bonds issued to finance multi-family housing (apartments). Bonds are secured by the revenues of the project(s).
MUD
Municipal Utility
District
In Texas, MUD's issue bonds in order to finance the construction or improvement of water, sewerage and drainage facilities within the district. Municipal Utility Districts are subject to the oversight of the Texas Water Commission. Bonds are general obligations of the districts. See also General Obligation and Revenue Bond.
Municipal Bond
A debt security issued by a non-federal governmental entity, such as a state or any of its political subdivisions or authorities. See also AMT Bonds, Bond, Taxable Bonds and Tax Exempt Bonds.
MSRB
The Municipal 
Securities Rulemaking Board
The regulatory body which has jurisdiction over municipal bond dealers. The SEC (Securities and Exchange Commission) must approve any rules proposed by the MSRB. See also Dealer.
Negotiated Sale
The process by which an issuer employs a firm or group of firms to distribute their bonds on a best efforts basis. See also Competitive Sale.
Net Debt
Gross debt less sinking fund accumulations and all self-supporting debt. See also Gross Debt.
NHA
(New Housing Authority Bond)
A type of multi-family housing revenue bond, New Housing Authority Bonds are issued by a local public housing authority to finance public housing. Backed by the solemn pledge of the U.S. Government to see that the payments are made in full, these bonds are no longer issued. See also Multi Family Housing Revenue Bonds.
NIC
Net Interest Cost
A method used to calculate the interest rate on a bond issue that takes into account the total amount of interest paid over the life of the bond issue divided by the number of bond years. See also Bond Years, Competitive Sale and TIC
Noncallable
Bonds are not subject to an optional redemption. Bonds may still be subject to an extraordinary call or mandatory redemption. See also Optional Redemption, Mandatory Redemption and Extraordinary Call.
Note
A short term (generally less than three year maturity) debt obligation payable from a one time source of revenue. Interest on notes is often paid at maturity, and may be calculated on an actual / actual basis. See Accreted Value and Interest at Maturity.
Notice of Sale
The official announcement by an issuer of the intention to sell bonds at a Competitive Sale. The notice of sale will describe the structure of the bonds; the criteria under which the high bid will be determined; and the time and place of the sale. See also Competitive Sale.
NRMSIR
Nationally Recognized Municipal Security Information Repository.
An institution designated by the SEC as being eligible to receive disclosure documents from issuers. Bonds offered for sale after July 1, 1995 require the issuer to disclose financial data and material events to a NRMSIR. See also Material Event.
Offer
The price or yield at which a security is offered for sale. Municipal bonds are traded 'over-the-counter', so the yield offered is net to the buyer. There is generally not a commission added on. See also Bid and Yield To Maturity.
Official Award
Confirmation by an issuer that the municipal bonds offered through a competitive bidding process have been awarded to an underwriting syndicate. See also Verbal Award.
Official Statement (OS)
A document provided by the issuer which includes the pertinent facts about a specific issue of bonds; including (but not limited to): interest rates, maturities, call features, security for the bonds, material information, sources and uses of funds. The Preliminary Official Statement (POS) is prepared in advance of the bonds being offered for sale, and is subject to change or completion. The Final Official Statement is prepared after the bonds have been issued.
OID
See Original Issue Discount. 
Optional Call / Redemption
A redemption feature on a bond issue which may be exercised by the issuer at their discretion. See also Call / Callable, Extraordinary Call / Redemption and Mandatory Call / Redemption.
Optional Put
A put feature which is exercised at the bond holder's discretion. See also Mandatory Put.
Order Period
The time during which orders may be entered for bonds from a new issue. All orders of a similar priority group entered during the order period receive equal standing. See also Allocation and Priority.
Original Issue
Discount 
(OID)
The amount of discount below par at which a bond is issued. May be expressed as either a dollar price or an interest rate. Original Issue Discount is treated the same as tax exempt interest and currently is not subject to individual capital gains tax. See also Market Discount and De Minimus and Tax Exempt Bond.
Overlapping Debt
That portion of the debt of various governmental units for which residents of a particular municipality are responsible. See also Gross Debt, Net Debt, Ad Valorem taxes and Assessed Valuation.
Par
The face or maturity amount of a bond.
Paying Agent
The agent appointed by the issuer to handle the disbursement of funds (interest payments, redemptions, matured bonds) to bond holders. See also Trustee.
PCR
Pollution Control
Revenue bonds.
Issued by a governmental authority on behalf of a corporation to provide financing for equipment to reduce or eliminate environmental pollution. Secured usually by a pledge of the corporation or a lease between the corporation and the authority. 
PHA
(Public Housing Authority)
A type of multi-family housing revenue bond, Public Housing Authority Bonds are issued by a local public housing authority to finance public housing. Backed by the solemn pledge of the U.S. Government to see that the payments are made in full, these bonds are no longer issued. See also Multi Family Housing Revenue Bonds.
Pre-Refunded Bonds
Bonds which have been advance refunded to a call date. See also Advance Refunding.
Preliminary Official Statement
See Official Statement
Preliminary Pricing
The tentative offering terms on a bond issue. All details of an issue are subject to change after the order period has expired. See Order Period.
Premium Bond 
A bond which is trading for more than it's face value (par). See also Par.
Primary Market
An over-the-counter market in which new issue bonds are offered to investors for the first time. The Primary Market includes both competitive and negotiated new issues. There are different regulatory and protocol concerns in the primary than the secondary market. See also Allocation, Competitive Sale, Negotiated Sale, Official Statement, Order Period, Preliminary Pricing, Priority, Secondary Market, Senior Manager and Co-Manager.
Principal
The face amount of a bond.
The amount of money (exclusive of interest) paid or received when a bond is traded.
Priority
Orders for new issue bonds are grouped according to type, and then are assigned different levels of priority, based on the benefit to the members of the syndicate. (The highest priority order is that which benefits the most number of syndicate members.) Ideally, orders are generally filled in descending levels of priority, and pro rata within each priority group. The priority levels may change from issue to issue, but will be disclosed by the Senior Manager before the Order Period begins. The usual levels of priority-in descending rank-are: 
Group Net--The bonds are sold at the public offering price (called 'net price') and the members in the syndicate share in the spread of the trade on a pro rata basis.
Net Designated--The bonds are sold at the net, but the purchaser decides which of the firms in the syndicate will be paid the spread from the trade.
Member Order-The bonds are sold to a member of the syndicate at the net price less the takedown. Only one firm earns the spread from a member order, hence Member Orders have the lowest priority.
See also Allocation, Order Period, Selling Group Member, Senior Manager, Spread and Syndicate.
Private Activity Bonds
Bonds whose proceeds benefit a non-public issuer, such as some airport revenue bonds, where even though the facility may be owned by a public, non-profit authority, airlines or concessionaires receive a benefit from the bonds. Depending on the purpose of the bonds, interest on Private Activity Bonds may be subject to the Alternative Minimum Tax (AMT), or federal income tax. See also AMT Bonds and Alternative Minimum Tax.
PSF
The Permanent School Fund was endowed by the 1854 Texas Constitution and given certain public land and income by the 1876 Texas Constitution. Additional lands have been granted over the years. The Texas PSF guarantees only voter-approved long term bonds issued by accredited school districts in Texas. As of 1997, the PSF had a market value of $15.5 billion and book value of $10.6 billion. The PSF guarantee is rated Triple-A (The highest rating available) by Moody's, S&P and Fitch. See also Ratings.
PUF
The Permanent University Fund was created in the 1876 Texas Constitution to provide an endowment for the University of Texas System and Texas A&M University System. The income generated by the fund flows to the two university systems. As of 1996, the PUF had a market value of $5.3 billion and book value of $4.6 billion. The PUF guarantee is rated Triple-A by Moody's and S&P. See also Ratings.
Put Bond
A bond that can be redeemed by the bondholder on a date or series of dates prior to the stated maturity date. See also mandatory Put and Optional Put.
Ratings
Refers to the ratings of credit quality published by the independent rating agencies, the largest of which are Moody's Investors Service, Standard and Poor's and Fitch Investors Service. Triple-A ratings are the highest quality rating from all three. Each rating agency uses their own criteria to rate an issue, but generally speaking, the ratings are based on the ability of an issuer to pay the debt, and the amount of protection that is provided to bondholders should the issuer experience adverse financial conditions. The lower the rating, the more speculative elements there may be in an issuer's financial condition. 
The following is reproduced courtesy of Moody's Investors Service, Inc.:
Key to Moody's Municipal Ratings
Aaa-Bonds rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa-Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
A-Bonds rated A possess many favorable investment attributes and are considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa-Bonds rated Baa are considered medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Ba-Bonds rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and ad times over the future. Uncertainty of position characterizes bonds in this class.
B-Bonds rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any length of time may be small.
Caa-Bonds rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca-Bonds rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C-Bonds rated C are the lowest rated class of bonds, and issues so rated can be regard as having extremely poor prospects of ever attaining any real investment standing.
Con(...)-Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These bonds are secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operation experience, (c) rentals which begin when the facilities are completed, or (d) payments to which some other limiting condition attaches. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa to B. The modifier 1 indicates that the issue ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issuer ranks in the lower end of its generic category.
Refunded Bonds
Bonds which have been advance refunded. See also Advance Refunding.
Refunding Bonds
Bonds whose proceeds are used to advance refund an older series of bonds. See also Advance Refunding.
Registered Bond
A bond which requires that the name of the owner be registered with the paying agent. (Registered bonds may be registered in Street Name.) Interest payments are made by check, but principal will only be repaid when the certificate is turned in. See also Bearer Bond, Book Entry Only and Street Name.
Retention
A limited number of bonds set aside for sale to members of a new issue underwriting group, to allocate as they see fit. Not all new issues have retention bonds.
Revenue Bond
Bonds which are secured only by a specific source of revenue. There is no pledge to levy a tax (or increase any pledged tax) to pay a revenue bond. See also General Obligation.
Secondary Market
The over-the-counter market in which previously issued bonds are traded. See also Primary Market.
SEC Yield
A yield quotation for mutual funds, based on a calculation established by the SEC. The SEC Yield is an annualized return based on the most recent 30-day period. It divides the net investment income earned (after expenses) by the maximum offering price per share on the last day of the period. The SEC Yield may be more or less than the fund has actually earned in the period. SEC Yield will not necessarily predict future returns. See also Current Yield, Distribution Yield and Yield To Maturity.
Selling Group Member
Firms which participate in the offering of a new issue of bonds, but which do not share in the risk, nor the fees paid by the issuer to the managers to place the bonds. See also Senior Manager and Co-Manager.
Senior Manager
The firm which acts on behalf of the co-managers in negotiating with the issuer and making decisions about the distribution of new issue bonds. See also Co-Manager.
Serial Bond
One maturity in a series of maturities coming due on a regular schedule (usually annually, sometimes semi-annually) in consecutive years. See also Term Bond.
Settlement Date
The date on which a transaction is completed and securities and cash change hands. Investors who purchase bonds that trade with accrued interest begin earning interest on the settlement date.
SFMR
See Single Family Mortgage Revenue bond. 
Single Family Mortgage Revenue Bond
Proceeds are used to provide mortgage loans for single family homes. The bonds are secured by the resulting pool of mortgages. SFMR bonds are always subject to extraordinary calls from mortgage prepayments. See also Extraordinary Call.
Sinking Fund
Payments which retire a portion of a bond before maturity. Most often, a sinking fund redeems bonds in accordance with a fixed schedule, which is laid out at the time of issuance. See also Average Life, Term Bond and Super Sinker.
Spread
The difference between the price paid for a bond (the bid) and the price at which it is offered to an investor (the offer). See also Bid and Offer.
Standard & Poor's
An independent company which rates the creditworthiness of issuers. Standard & Poor's is owned by McGraw Hill. See also ratings.
Standby Letter of Credit
See Letter of Credit
Street Name
Securities which are registered in the name of a broker dealer for the benefit of a customer. See also Dealer.
Super Sinker
A maturity in a bond issue which is redeemed from extraordinary calls before other maturities in an issue. Most often (but not exclusively) used in single family housing issues since they are likely to experience mortgage prepayments (which must be used to call bonds). The rate at which prepayments occur will determine the actual average life of the bond. See also Average Life, Single Family Mortgage Revenue Bond and Sinking Fund.
Swap
A transaction in which an investor sells and simultaneously buys different securities. Swaps can be executed for a number of reasons, including tax purposes (to book a long term capital gain or loss, for instance); to adjust portfolio characteristics such as average maturity, cash flow, etc.; or to take advantage of changes in market conditions, credit quality, etc.
Syndicate
A group of firms which join together to underwrite and distribute new issue bonds. Each firm in the syndicate may have a different percentage of liability in the syndicate. Each syndicate will have a Senior Manager and could also have a mix of Co-Manager(s), Members and Selling Group Member members. See also Senior Manager, Co-Manager and Selling Group Member.
Syndicate Restrictions
Restrictions imposed by the Senior Manager on a new issue of bonds regarding the price at which bonds may be offered. All firms in a syndicate are bound by syndicate restrictions. See also Senior Manager and Syndicate.
Takedown
The discount from the offer price allowed to a member of an underwriting account on any bonds purchased from the account.
Taxable Municipal Bond
A municipal bond whose interest is not exempt from federal income taxation. See also Municipal Bond and Tax Exempt Bond.
Tax Exempt Bond
A bond whose interest is exempt from Federal income tax. Municipal Bonds are frequently called Tax Exempt Bonds. Tax exempts trade at lower yields than taxable bonds because of the tax benefit of the exemption. Some Municipal Bonds are not exempt from state taxes, and the rules vary from state to state. Territorial bonds (Puerto Rico, Virgin Islands and Guam) are presently exempt from all Federal, state and local taxation.
Tax Increment Revenue Bonds
Bonds secured only by the expected increase in tax revenues as a result of some property development or improvement.
Tax Revenue Bond
A bond secured by the proceeds of a specific tax whose rate cannot be raised if it becomes insufficient to pay the bonds. See also General Obligation and Limited Tax G.O.
Technical Default
A default under the terms of the bond indenture, other than nonpayment of interest or principal. Examples of technical default are failure to maintain required reserves or to maintain sufficient coverage ratios. See also Indenture.
TEFRA
The Tax Equity and Fiscal Responsibility Act of 1986 which, among other things, restricted banks from deducting the cost of carrying tax free bonds in their portfolios purchased after August 6, 1986, unless those bonds are Bank Qualified, in which case they may still deduct a portion of the cost of carrying those bonds. See also Bank Qualified.
Term Bond
A bond which is retired from a series of sinking fund payments. See also Bullet Maturity, Serial Bond and Sinking Fund.
TEY
Taxable Equivalent Yield.
The taxable yield an investor would have to receive in order to pay taxes and match the same yield received on a tax exempt bond. See also Tax Exempt Bond
30 / 360
Calendar used to calculate interest on most municipal bonds . (30 day month, 360 day year. For interest calculations, even February has 30 days.) See also Actual / Actual
TIC
True interest cost.
A method of calculating the interest cost on an issue of bonds that discounts the cash flows for the issue. Also called CIC (Canadian interest Cost). See also NIC and Competitive Sale.
Trading Flat
When bonds do not trade with accrued interest. Bonds can trade flat if they are settled on a coupon date, or if the interest payments are in arrears. See also Accrued Interest.
Trustee
The agent appointed by the issuer to represent the interests of the bondholders. The trustee is also frequently the paying agent. See also Paying Agent.
Underwrite
To buy a new issue of bonds from the for distribution to the public. See also Syndicate.
Unlimited-Tax Bond
A bond secured by the pledge of a tax that is not limited as to rate or amount. See also General Obligation and Limited Tax G.O.
Variable Rate
A rate of interest payable on a bond which is subject to change. May be daily, weekly, monthly, annually, or tied to an index or some other security. See also Fixed Rate.
Verbal Award
Confirmation by an issuer that municipal bonds offered through a competitive bidding process are going to be awarded to an underwriting syndicate. The verbal award is given subject to verification of bid parameters and bid details. See also Official Award.
W&S
Water and Sewer revenue bonds, which are secured by a pledge of revenues generated by a water and sewer system.
WAII
When As and If Issued
New issue bonds are always offered as WAII until they are legally issued, which occurs when the issuer closes on the bonds with the underwriter(s). If the bonds are not issued, then all WAII trades are canceled. See also Underwrite. 
Warrants
A municipal warrant is a debt obligation that does not require voter approval. It could be secured either by a G.O. or revenue pledge. The terminology is peculiar to Alabama due to an a antiquated state law requiring voter approval of all bonds. See also General Obligation and Revenue Bond.
When Issued
See WAII
WI
Abbreviation for WAII
Workable
An approximation of the bid for a bond, used to evaluate a bond, when an investor may not yet be ready to sell. Unlike a bid, a trader may not fully research a bond when preparing a workable bid, so the trader is not obligated to honor a workable bid should the owner of the bonds decide to sell them. See also Bid. 
Yield to Call
The annualized rate of return a bond provides to specified call date and call price. The yield-to-call calculation is similar to the yield-to-maturity calculation, except that a call date and call price are used in lieu of the maturity date and maturity value.
Yield To Maturity (YTM)
The annual rate of return on a bond if it is held until maturity. By industry convention, YTM assumes semiannual compounding of the coupon payments, reinvested at the yield to maturity rate. YTM takes into account discount received or premium paid, as well as the interest rate on the bond. Yield To Maturity is the most accurate measure of a bond's lifetime performance. See also After Tax Yield, Current Yield, Distribution Yield and SEC Yield.
Zero Coupon Bond (Zero's)
A bond which pays all interest at maturity. Zero's are sold at a discount to their face value (par). The difference between the purchase price and the maturity value is the interest earned on the bond. (If a zero is purchased at a discount to its compounding yield, there may be a taxable capital gain.) On taxable zero coupon bonds, taxes may be due each year on that year's accretion, rather than when the bonds mature. See also Accreted Value, Current Interest Bond, Discount Bond and Market Discount and Par.
This Glossary Is Intended For Informational Purposes Only. For Specific Advice Or Questions, Please Contact Your J.C. Bradford Representative Or Tax Advisor.
Did We Forget Anything? Contact Patrick Luby With Questions Or Comments:
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