When you are acquiring a bond, the capital you use is always low yet the yields are always high. In this article, I am going to explain some of the common words used when dealing with treasury bills and bonds which will probably help you get more value from your investments.
I really want you to make a wise move before you real acquire a bond; you are supposed to read through the terms of that particular bond before you go for it. The central bank publicizes a prospectus which can be obtained from the primary dealers or the bank it's self. Below are some of the terminologies you will have to encounter as a person who deals in bonds and treasury bills which you should be conversant with to make better investment decisions.
Ask Price
This is the price at which an investor is willing to sell a treasury bond.
Bid
A commitment by an investor to the central bank regarding the amount, price and tenor bond.
Competitive Bid
A commitment to buy Treasury bonds with a face value in excess of the value set by the central bank at a state price.
Non Competitive Bid
To commitment to buy Treasury bonds with a face value at the average price of the successful competitive bids.
Central Depository System
Computerized register at the central bank that maintains accounts for holders of government securities.
CDS Id
An identification number that is issued to a person or organization when registering on the CDS.
Cds Instrument Account
An account in the name of the holder of government securities for recording investments on the CDS.
Coupon Interest
Interest paid at a fixed rate on the face value every six months.
Discount
Additional interest income that is earned over the life of a bond when the bond is bought at a price lower than the face value.
Face Value
The value of a bond on maturity date.
Premium
Interest expenses paid by the investor when they purchase a bond at a price in excess of the par or face value.
Maturity Value
The value of a bond on maturity date.
Yield to Maturity
It is the discount rate which causes the future cash flows from the semi-annual coupon interest payments and the maturity value to equal the price of the bond today. The yield to maturity assumes that the semi-annual coupon interest payments will be reinvested at the same yield to maturity.
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