Daily trading limit
The maximum price range set by the exchange cash day for a contract.
Dated date
The date from which the bondholder is entitled to receive interest. The bondholder may actually receive the bonds on a different date.
Day count
The date of a bond issue from which the first owner of a bond is entitled to receive interest. The convention used to calculate the number of days in an interest payment period. Under the 30/360 day-count convention, which is typically used for Fannie Mae's long-term fixed-rate debt securities, a year is assumed to consist of 360 days, or twelve 30-day months. A common alternative is actual/365, in which the actual number of days elapsed is used, and a year is assumed to consist of 365 days (or 366 days in a leap year). Other conventions include actual/actual and actual /360. For Fannie Mae floating-rate notes, the day count method may vary.
Day order
An order that is valid only for the remainder of the trading day in which it was entered.
Day traders
Speculators who take positions in futures or options contracts and liquidate them prior to the close of the same trading day.
Day trading
The act of buying and selling securities on the same day.
Dealer
An individual or firm acting as a principal rather than a broker or agent. An individual or entity, such as a securities firm, that acts as a principal and stands ready to buy and sell for its own account. A dealer buys and sells securities and holds inventory.
Debenture
Unsecured debt obligation, used against the general credit of a corporations, rather than against a specific asset and generally referring to long-term, unsecured debt. In the case of Fannie Mae, an unsecured general obligation of Fannie Mae, typically with a fixed coupon rate, that may or may not be callable by Fannie Mae.
Debt security
A financial instrument representing money borrowed in which the issuing company generally agrees to repay the principal (typically, the original amount borrowed) at a specified maturity date and make interest payments according to an agreed schedule. Notes, debentures, and the like that are evidence of amounts owed and have definite payment dates are known generally as debt securities.
Debt service coverage ratio (DSCR)
The annual net operating income from a property divided by annual cost of debt service including principal payments. A DSCR below 1.0 means that there is insufficient cash flow generated by the property to cover debt payments.
Deep discount bonds
Bonds selling for a price much less than the face value, generally 80% of par. Bonds selling at an original issue discount are not included in this category.
Default
Failure of a borrower to pay principal or interest when due and comply with the terms of a note or the provisions of a mortgage. Defaults can also occur for failure to meet non-payment obligations, such as reporting requirements, or when a material problem occurs for the issuer, such as a bankruptcy.
Deferred maintenance account
An account that the borrower is required to fund which provides for maintenance of a property.
Deferred (delivery) month
The more distant month(s) in which futures trading is taking place, as distinguished from the nearby (delivery) month.
Delinquency
A mortgage loan on which a payment has not been made by the due date.
Deliverable grades
The standard grades of commodities or instruments listed in the rules of the exchanges that must be met when delivering cash commodities against futures contracts. Grades are often accompanied by a schedule of discounts and premiums allowable for delivery of commodities of lesser or greater quality than the standard called for by the exchange. Also referred to as contract grades.
Delivery
The transfer of the cash commodity from the seller of a futures contract to the buyer of a futures contract. Each futures exchange has specific procedures for delivery of a cash commodity. Some futures contracts, such as stock index contracts, are cash settled.
Delivery day
The third day in the delivery process at the Chicago Board of Trade, when the buyer's clearing firm presents the delivery notice with a certified check for the amount due at the office of the seller's clearing firm.
Delivery month
A specific month in which delivery may take place under the terms of a futures contract. Also referred to as contract month.
Delivery points
The locations and facilities designated by a futures exchange where stocks of a commodity may be delivered in fulfillment of a futures contract, under procedures established by the exchange.
The amount an option premium changes, given a unit change in the underlying futures price. It is the probability that the option will be in-the-money by expiration. See hedge ratio.
Demand, Law of
The relationship between product demand and price.
Denomination
The face amount or par value of a bond. The amount the issuer agrees to pay on the maturity date.
Depository Trust & Clearing Corporation (DTCC)
Oversees two principal subsidiaries, The Depository Trust Company (DTC) and the National Securities Clearing Corporation (NSCC). These two firms provide the infrastructure for the clearance, settlement and custody of the vast majority of equity, corporate debt and municipal bond transactions in the U.S.
Derivative
A financial instrument which derives its value from an underlying security or notional amount.
Differentials
Price differences between classes, grades, and delivery locations of various stocks of the same commodity.
Disclosure documents
(See prospectus and prospectus supplement)
Discount
The difference between a bond's current market price and its face value. This can be expressed in either a dollar amount or as a percentage. The amount by which the purchase price of a security is less than its face value. A discount raises the effective yield of the security above the coupon rate or, in the case of securities that have no coupon payments, determines the effective yield.
Discount margin
The effective spread to maturity of a floating-rate security after discounting the yield value of a price other than par over the life of the security.
Discount method
A method of paying interest by issuing a security at less than par and repaying par value at maturity. The difference between the higher par value and the lower purchase price is the interest.
Discount note
Short-term, unsecured general obligations of Fannie Mae issued at discount from face value, with maturities ranging from overnight to 360 days. They have no periodic interest payments; the investor receives the note's face value at maturity. Similar in payment mechanics to a U.S. Treasury bill.
The interest rate the Federal Reserve Bank charges on loans to member banks.
An interest rate used to convert future payments to present values. See present value.
Discount yield
The yield on a security sold at a discount; also called bank discount basis. An example is a U.S. treasury bill sold at $9750 and maturing at $10,000 in 90 days. To calculate the (annual) discount yield, divide the discount ($250) by the face amount ($10,000) and multiply that number by the approximate number of days in the year (360) divided by the number of days to maturity (90). The calculation would result in a discount yield of 10%.
An arrangement by which the holder of an account gives written power of attorney to another person, often his broker, to make trading decisions. Also known as a controlled or managed account.
Distribution date
The date on which payments from a security to an investor are made (usually the 25th of the month for Fannie Mae MBS or REMIC securities).
Distribution of principal
Return of principal to unit trust shareholders, usually when a bond in the portfolio reaches maturity, is called or, if necessary, is sold prior to maturity.
Dollar price
The unit in which the market quotes a fixed-income security, usually stated as a percentage of the security's face value, the fractional component of which may be quoted in terms of decimals, 8ths, 32nds, or 64ths. The dollar price does not include accrued interest.
Double-exemption bonds
Bonds that are exempt from both state and federal income taxes.
Double and triple tax-exemption
Securities that are exempt from state and local as well as federal income taxes are said to have double or triple tax-exemption.
Downgrade
The lowering of a bond's rating.
Due diligence
Investigation of a bond issue by bond counsel for underwriters and issuers to insure that all material information has been included in the official statement informing the potential investors about the securities and that no incorrect statements are included.
Due on sale
A covenant which makes a mortgage due if the property is sold.
A measure of the price sensitivity of fixed income securities for a given change in interest rates. It is a measure of the average (cash-weighted) term-to-maturity of a bond. There are two types of duration, Macaulay duration and modified duration. Macaulay duration is useful in immunization, where a portfolio of bonds is constructed to fund a known liability. Modified duration is an extension of Macaulay duration and is a useful measure of the sensitivity of a bond's price (the present value of its cash flows) to interest rate movements. The common objective behind the different definitions of duration is to measure the price sensitivity of a fixed-income security to changes in its yield. Bonds of similar duration will have similar price movements for a given move in interest rates. If a bond's duration is 4.5 years, the price of the bond will fall 4.5% for a one percent rise in interest rates. Effective duration takes into account any calls, puts, or other options of the security. Modified duration however does not take these into account.
Dutch auction
An auction in which the item's price is lowered until it gets its first bid and sold at that price.
DV01 (risk in dollar value)
A risk factor that measures the risk in dollar amount based on a one bp change of bond equivalent yield times 100.