Bond Analytics Glossary

Calculated Measures Available (in alphabetical order)

Accrued Interest

Discount Margin

The interest that adds up (accrues) on a bond which

the holder of the bond is entitled to receive if the bond
is sold between coupon payment dates.

The difference between an Adjustable Rate Mortgages

Yield to Maturity and the current value of the index
on which the ARMs coupon is based (e.g. 6-month
LIBOR).

Asset Swap Spread

A measure of credit risk expressed as a spread in
basis points over the LIBOR curve, for a specified bond
at a given price.

Average Life (in Years)

Also referred to as the weighted average life. The
weighted average time to receipt of principal payments
(including scheduled pay-downs and prepayments). For
non-amortizing securities, the average life equals the
time to the stated maturity. In BondEdge, for securities
with embedded options the average life is based on the
call/put date if the security is trading to call/put.

Duration to Worst
Modified Duration computed to the redemption date
which would provide the lowest yield (for callable
bonds) or highest yield (for putable bonds). For
securities without calls or puts, Duration to Worst is
equal to Modified Duration.
See also: Macaulay Duration to Worst definition.

Duration to Worst Annualized

Duration to Worst, based upon an annual compounding
frequency.

Convexity

See also: Macaulay Duration to Worst definition.

An option-adjusted measure. The average incremental

percentage change in a bonds price (including accrued)
beyond what is described by its Effective Duration, given
+/-100bp shifts in the underlying par curve. If a bonds
currency has no associated government yield curve, the
U.S. Treasury curve is used in the calculation.

DV01

Positive convexity indicates that the bonds effective

duration increases as interest rates fall, and decreases
when interest rates rise. Negative convexity indicates
that the bonds effective duration decreases when
interest rates fall and increases when rates rise.
Expressed as a Percentage Contribution to Price
Change, it is approximately half of the duration drift
form of convexity (and therefore does not need to be
divided by two when used to estimate a bonds price
change).

Current Yield
Coupon divided by clean price.

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The dollar value of a 01 - i.e., the estimated change

in the price of the instrument given a 1bp change in the
yield to worst.
See also: Yield to Worst

Effective Duration
An option-adjusted measure. The average percentage
change in a bonds price (including accrued) given
+/- 100bp shifts in the underlying par government
yield curve (spot or par depending on the BondEdge
preference setting). Incorporates the effect of
embedded options for corporate bonds and changes
in prepayments for mortgage-backed securities. If

a bonds currency has no associated government

yield curve, the U.S. Treasury curve is used in the
calculation.
The Par Curve method first shifts the theoretical Par
Bond curve (+/- 100 bps), then derives two new spot
curves from the shifted par curves. These spot curves
are used to value the security in the higher and lower
rate environments, holding the securitys initial OAS
constant (the OAS for the security is derived from the
Input Price and the current spot curve). The average
percentage change in the price of the security versus
its current price is its Par Curve effective duration.
To be consistent with the Index providers published
values, effective durations and convexities for Indices
in BondEdge are computed using the Par Curve
method.

Local Duration
The standard Macaulay duration formula, modified per
the bonds payment frequency.
See also: Macaulay Duration definition.

Macaulay Duration
The time weighted present value of the bonds future
cash flows divided by the input price (including accrued
income). For mortgage-backed and asset-backed
securities cash flows are derived from the current
prepayment estimate (PSA%, CPR%, PPC%, etc.)
for the security. Macaulay Duration for Floaters is
computed to the next reset date.

Macaulay Duration to Worst

Macaulay Duration computed to the redemption date
which would provide the lowest yield (for callable
bonds) or highest yield (for putable bonds). For
securities without calls or puts, Macaulay Duration to
Worst is equal to Macaulay Duration.
See also: Macaulay Duration definition.

Maturity Years
Remaining years to maturity.

Modified Duration
The standard Macaulay duration formula, modified for
a semi-annual bond-equivalent yield expression.
See also: Macaulay Duration definition.

Modified Duration Annualized

The standard Macaulay duration formula, assuming an
annual compounding frequency.
See also: Macaulay Duration definition.

Nominal Spread
The difference between a securitys yield to worst and
the yield to worst of the average life matched point of
the government curve.
See also: Yield to Worst

OAS (LIBOR/Swap)
The Option Adjusted Spread computed using the
LIBOR (Swap) curve associated with the bonds
currency. If no curve is available, the LIBOR OAS is
-9999.
See also: OAS (Treasury/Government).

OAS (Treasury/Government)
Option Adjusted Spread is defined as the constant
spread which, when added to the spot rates derived
from the government yield curve associated with
the bonds currency, causes the present value of
the expected option adjusted cash flows to equal
the input price. For tax-exempt Municipals, OAS is
derived from a AAA-rated, GO municipal curve. If no
government yield curve for the currency is available,
the OAS is derived from the U.S. Treasury curve.
Note: For corporate bonds with embedded options,
the OAS is derived using a finite difference grid to
examine the impact of option features on cashflows
across interest rates and through time. For mortgagebacked securities (pass-throughs, CMOs and ARMs),
OAS is derived using a Monte Carlo simulation which
generates cashflows along various interest rate paths,
using the appropriate prepayment model.

 Stated Maturity Years

Yield Value of 32nd

Remaining years to stated maturity.

The change in yield to worst given a 1/32 change in the

input price, as specified by the client.

Yield to Maturity
The internal rate of return that causes the present
value of a deterministic set of cash flows (assuming
no options for bonds and average prepayment for
mortgage backed securities) to equal the bonds
market value (price + accrued) as of the pricing date.
For Options on Futures, equals annualized Theta,
with a maximum of 100%. Assumes a semi-annual
discounting of coupon payments.

Yield to Maturity - Annualized

Yield to Maturity, assuming an annual discounting of
coupon payments.
See also: Yield to Maturity definition.

Yield to Put
The Internal Rate of Return of a putable bond,
assuming that the bond is put on the specified put date
at the specified put price.

Yield to Worst
The lowest rate of return expected from a bond given
the worst scenario when some or all its provisions
(call/put options, sinking fund, prepayments, etc) are
used. Put another way: for a bond with provisions such
as call/put, sinking fund, prepayments, each scenario
will produce a set of cash flow thus give a rate of return
(yield to maturity, or yield to call/put depending on
provisions used). The smallest rate of return among
them is called Yield to Worst for the bond. Assumes a
semi-annual discounting of coupon payments.

Yield to Worst - Annualized

Yield to Worst, assuming an annual discounting of
coupon payments.
See Yield to Worst definition.

ZVO
The constant spread over the Treasury spot curve
which equates the discounted cash flows derived
from todays implied forward curve to the input price,
as specified by the client, of the security. May be
interpreted as the spread an investor would expect to
earn if there was no volatility of interest rates.

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