Bonds Are Not Forever: The Crisis Facing Fixed Income Investors

Glossary

alpha The amount by which a security outperforms its benchmark after adjusting for its riskiness.

arbitrage The simultaneous buying of one security and selling of a similar or identical security so as to lock in a profit between the two transactions.

asset management fees Fees charged by a money manager to the client based on a percentage of the account size or assets being managed.

basis point value (BPV) A measure of risk commonly used in bonds. One basis point is 0.01 percent. BPV measures the change in price of a bond if the yield moves by one basis point. It is conceptually similar to duration.

beta A measure of a security’s risk relative to the benchmark, based on volatility of a security’s price history. A beta of 1 indicates a security move in step with the market.

bid and ask prices Market makers routinely quote a price at which they’d buy a security (“bid price”) and a higher price at which they’d sell it (“ask price”).

bid/ask spread The gap between the bid and ask prices is a measure of the costs incurred by an investor in doing a trade. Less liquid markets have a wider bid/ask spread, reflecting higher access costs for investors.

Big Bang The 1986 deregulation of London’s financial markets.

blue button A trainee broker on the floor of the London Stock Exchange.

bond fund A mutual fund or exchange-traded fund (ETF) that holds bonds.

Capital Asset Pricing Model (CAPM) A widely used theory that underpins the pricing of securities. Key principles include that ...