About Money 101

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Yankee bonds Foreign bonds denominated in US$ issued in the United States by foreign banks and corporations. These bonds are usually registered with the SEC. For example, bonds issued by originators with roots in Japan are called Samurai bonds. Yankee CD A CD issued in the domestic market, typically New York, by a branch of a foreign bank. Yankee market The foreign market in the United States. Yard Slang for one billion dollars. Used particularly in currency trading, e.g. for Japanese yen since on billion yen only equals approximately US$10 million. It is clearer to say, " I'm a buyer of a yard of yen," than to say, "I'm a buyer of a billion yen," which could be misheard as, "I'm a buyer of a million yen." Yield The percentage rate of return paid on a stock in the form of dividends, or the effective rate of interest paid on a bond or note. Yield curve The graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities. Related: Term structure of interest rates. Harvey (1991) finds that the inversions of the yield curve (short-term rates greater than long term rates) have preceded the last five U.S. recessions. The yield curve can accurately forecast the turning points of the business cycle. Yield curve option-pricing models Models that can incorporate different volatility assumptions along the yield curve, such as the Black-Derman-Toy model. Also called arbitrage-free option-pricing models. Yield curve strategies Positioning a portfolio to capitalize on expected changes in the shape of the Treasury yield curve. Yield ratio The quotient of two bond yields. Yield spread strategies Strategies that involve positioning a portfolio to capitalize on expected changes in yield spreads between sectors of the bond market. Yield to call The percentage rate of a bond or note, if you were to buy and hold the security until the call date. This yield is valid only if the security is called prior to maturity. Generally bonds are callable over several years and normally are called at a slight premium. The calculation of yield to call is based on the coupon rate, length of time to the call and the market price. Yield to maturity The percentage rate of return paid on a bond, note or other fixed income security if you buy and hold it to its maturity date. The calculation for YTM is based on the coupon rate, length of time to maturity and market price. It assumes that coupon interest paid over the life of the bond will be reinvested at the same rate. Yield to worst The bond yield computed by using the lower of either the yield to maturity or the yield to call on every possible call date.

Glossary created by Campbell R. Harvey, Professor of Finance,
Fuqua School of Business at Duke University