An Introduction to the Bond Markets

Appendix C

Bond Market Glossary

30/360

Method of calculating interest, including accrued interest, on an instrument based on a calendar of twelve 30 day months. With this method interest does not accrue on the 31st of a month and there is always assumed to be three days between 28 February and 1 March. This method originally arose in the pre-computer era. There are slight differences to the calculations in North America and Europe.

AAA or Aaa

The highest security risk rating awarded to a bond or issuer by a rating agency. Standard & Poor and Fitch rate such securities AAA, whereas Moody rates them Aaa.

ABS

See ‘Asset-backed security’.

Accrued interest

Bonds normally pay predefined interest amounts on predefined days. Accrued interest is the interest earned on the bond since the last interest date or, in the case of a new issue from the issue date, up to the value date. When buying or selling a bond, the accrued interest is usually added to, or in a few markets immediately before a coupon payment, when the seller keeps it, deducted from the price of the bond.

Actual/actual

Method of calculating accrued interest on a daily basis based on the number of actual calendar days since the last coupon date or for a new issue from the issue date, divided by the actual calendar days in the period.

ADR

See ‘American Depository Receipt’.

AER

See ‘Annual equivalent rate’.

All-in price

The dirty or gross price of a security.

American Depository Receipt

The shares of a non-US company that have ...