| Benchmark bond | A low-risk bond, usually a U.S. Treasury bond, to which the yield on a risky bond is compared to assess its risk.
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| Commercial paper | Short-term, privately issued zerocoupon debt that is low risk and very liquid and usually has a maturity of less than 270 days.
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| Expectations hypothesis of the term structure | The proposition that long-term interest rates are the average of expected future short-term interest rates.
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| Fallen angel | A low-grade bond that was initially a highgrade but whose issuer fell on hard times.
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| Flight to quality | An increase in the demand for low-risk government bonds, coupled with a decrease in the demand for virtually every risky investment.
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| Interest-rate spread | 1. The difference between the interest rate a bank receives on its assets and the interest rate it pays to obtain liabilities. 2. Can also be used as a synonym for risk spread.
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| Inverted yield curve | When the term structure of interest rates slopes down.
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| Investment-grade bond | Bond with low default risk; Moody's rating of Baa or higher; and Standard & Poor's rating of BBB or higher.
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| Junk bond | A bond with a high risk of default. Also called a high-yield bond.
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| Liquidity premium theory of the term structure | The proposition that long-term interest rates equal the average of expected short-term interest rates plus a risk premium that rises with the time to maturity.
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| Municipal bonds | Bonds issued by state and local governments to finance public projects; the coupon payments are exempt from federal and state income taxes.
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| Prime-grade commercial paper | Commercial paper with a low risk of default.
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| Rating | A measure of the default risk associated with a company's debt; normally a series of letters going from AAA for bonds with the lowest risk of default to D for bonds that have defaulted.
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| Rating downgrade | When a bond-rating agency lowers the rating of a company, signaling that its bonds have an increased risk of default.
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| Rating upgrade | When a bond-rating agency raises the rating of a company, signaling that its bonds have a reduced risk of default.
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| Risk spread | The yield over and above that on a low-risk bond such as a U.S. Treasury with the same time to maturity, it is a measure of the compensation investors require for the risk they are bearing. Also called a default risk premium.
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| Risk structure of interest rates | The relationship among the yields of bonds with the same time to maturity but different levels of risk.
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| Spread over Treasuries | The difference between the yield on a bond and that on a U.S. Treasury with the same time to maturity; a measure of the riskiness of the bond.
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| Taxable bonds | A bond whose coupon payments are not exempt from income tax.
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| Yield curve | A plot showing the yields to maturity of different bonds of the same riskiness against the time to maturity.
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