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O
Original-Issue Discount (OID)
Some bonds are issued at a discount to the Par value. In the case of a municipal bond, the accretion of the value from the original issue discount price to Par is considered tax-free income. Throughout the life of the bond, the cost basis of the bond will increase based on a formula known as constant yield to maturity (CYM). This means that if you buy a bond with an OID priced at 96, and sell it 5 years later at 98, you will not incur a capital gain as long as the accreted value of the bond based on CYM is 98 or greater
P
Par Value
Par value, also known as Face value, is the value of the bond at maturity. Almost all bonds have a $1,000 par value. Bond prices are almost always quoted as a percentage of par, so you will hear prices such as 99 or 101.5. These refer to the percentage of $1,000, and mean $990 and $1,015 per bond respectively.
Pay Frequency
The pay frequency refers to the frequency that the bond pays interest. The most common pay frequency is semi-annually (twice per year), but bonds can also pay interest monthly, quarterly, annually, or at maturity.
Physical
Bonds are issued in several different delivery forms. The most popular forms of delivery are Book Entry and Registered. There are also some older bonds in circulation that were issued in bearer form. In the case of book entry bonds, there is no physical bond certificate created. Bearer bonds and registered bonds are both issued with physical bond certificates that can be delivered to the bondholder, so they are said to be physical bonds.
Premium Bond
Bonds mature at a par value, which is almost always $1,000. A premium bond is any bond that is currently trading at a price above par. A discount bond is a bond trading at a price lower than par.
Pre-Refunded
Sometimes an issuer desires to pay off a bond in order to remove the debt from its books. However, the bond may not be immediately callable, and the issuer can not redeem the bonds at its discretion. In this case the issuer may deposit sufficient funds with a trustee into an escrow account so that the trustee can use the funds to pay all interest and principal on a specified call date in the future. In this case, the bond is said to be pre-refunded, and the pre-refunded date should be viewed as the date that the bond will be redeemed.
Price
Almost all bonds have a $1,000 par value. Bond prices are almost always quoted as a percentage of par, so you will hear prices such as 99 or 101.5. These refer to the percentage of $1,000, and mean $990 and $1,015 per bond respectively. The price of a bond moves higher and lower throughout the life of a bond based on movements in general market rates, the maturity of the bond, changes to credit ratings, and other factors.
Principal
The principal is the cost per bond multiplied by the number of bonds in a transaction. Note that the price of a bond is quoted as a percentage of $1,000 (Par). So if you purchase 10 bonds that are priced at 99.0, the price is 10 x (99% of 1,000) = $9,900. (To convert a bond price to principal, simply move the decimal one place to the right.)
Purpose
Most municipal bonds are issued for a specific purpose. Some common purposes of issuing bonds are to pay for housing, education, healthcare, and transportation.
Put Bonds
Put bonds are issued with an option that entitles bondholders to force the issuer to buy back the bonds on specific dates (put the bonds back to the issuer).
Q
Quantity / minimum
The quantity refers to the number of bonds being offered. Note that bonds typically have a $1,000 par value, so 50 bonds means $50,000 of par value. The current actual price may be more or less than par. In some cases the bond offering may be for a minimum number of bonds as well. This means that you can not buy fewer bonds than the minimum designated in the offering.
R
Ratings (See Credit Rating)
See credit rating
Redemption
When the principal of the bond is paid off, the bond is said to be redeemed. Bonds can be redeemed at maturity, or on a call date or put date.
Registered
Bonds
Registered bonds are bonds that are issued as a physical certificate, and the owner is registered with the bond trustee. If the bond is lost, the registered owner can get the certificate replaced by paying a small fee.
Revenue
Bonds
The interest and principal payments for a municipal bond are typically either guaranteed by the issuer or by the revenue from a specific project. If they are guaranteed by a specific project, the bondholder is relying on revenue from the project to pay principal and interest, and the bonds are known as revenue bonds. If the issuer guarantees the repayment of principal and interest, the bonds are known as a general obligation (often referred to as G.O.) of the issuer.
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