T-Bill rate
The weekly average auction rate of the three-month Treasury bill stated as the bond equivalent yield.
TAC Tranche
Targeted amortization class tranche. A TAC tranche uses a mechanism similar to a sinking fund to determine a fixed principal payment schedule based on an assumed prepayment rate. The effect of prepayment variability that is removed from the TAC tranche is transferred to a companion tranche.
Take delivery
Accepting receipt of security certificates after the bonds have been purchased and transferred between accounts.
Targeted Amortization Class (TAC)
A REMIC class designed to provide investors with a payment schedule that will hold at a single, constant prepayment speed. Prepayments in excess of the predefined prepayment speed are allocated to companion classes and do not affect the TAC class. If prepayments fall below the predefined speed, however, the TAC class will have slower principal repayment and its average life will extend.
Taxable bonds
The interest on these bonds is taxable on the federal level and possibly on the state level as well.
Technical analysis
Anticipating future price movement using historical prices, trading volume, open interest and other trading data to study price patterns.
Telephone
Bonds issued by companies in the telephone sector, which may include regional and long distance telecommunication service providers.
Term bond
A large municipal bond issue with all the bonds maturing on a single date. These bonds usually require a mandatory sinking fund.
Term funding
Financing done to meet specific cash-flow needs for a specific period of time.
Territories
Commonwealth countries associated with the U.S. such as Puerto Rico or unincorporated territories of the U.S. such as Guam, who issue municipal debt.
Tick
The smallest allowable increment of price movement for a contract.
Tight market
A condition in the secondary market with active trading and narrow spreads between asked and bid prices.
Time-stamped
Part of the order-routing process in which the time of day is stamped on an order. An order is time-stamped when it is (1) received on the trading floor, and (2) completed.
Time and Sales Ticker
Part of the Chicago Board of Trade Market Profile(r) system consisting of an on-line graphic service that transmits price and time information throughout the day.
Time limit order
A customer order that designates the time during which it can be executed.
The amount of money an option buyer is willing to pay for an option in the anticipation that, over time, a change in the underlying futures price will cause the option to increase in value. In general, an option premium is the sum of time value and intrinsic value. Any amount by which an option premium exceeds the option's intrinsic value can be considered time value. Also referred to as extrinsic value.
To be announced (TBA)
A contract for the purchase or sale of a mortgage-backed security to be delivered at an agreed-upon future date but does not include any information pertaining to the amount of pools to be delivered.
Total bonded debt
The total amount of debt outstanding for a state or local government regardless of the purpose of the debt.
Total return
The return on an investment, including income from dividends and interest, as well as appreciation or depreciation in the price of the security, over a given time period, usually a year.
Trade balance
The difference between a nation's imports and exports of merchandise.
Trade date
The date on which a bond transaction occurs.
Trader
A person or firm engaged in buying or selling bonds for a profit. Traders usually hold bonds in inventory for only a short period of time.
The maximum number of speculative futures contracts one can hold as determined by the Commodity Futures Trading Commission and/or the exchange upon which the contract is traded. Also referred to as a position limit.
Tranche
A class of bonds in a REMIC offering which shares the same characteristics. "Tranche" is the French word for "slice."
Transfer agent
A bank or trust company appointed by an issuer to maintain records of securities owners, to cancel and issue certificates and to address issues arising from lost, destroyed or stolen certificates.
Transportation
Bonds issued by companies in the transportation sector, which may include railroads, truckers, and air freight.
Treasury Bills, U.S. (T-Bills) U.S.
Government securities with a maturity of one year or less (maturity dates up to 364 days). T-Bills are purchased at a discount to the full face value, and the investor receives the full value when they mature. The difference or "discount" is the interest earned. T-Bills are issued in denominations of $10,000 (auction) and $1,000 increments thereafter.
Treasury Bonds, U.S.
U.S. government securities and long-term obligations of the U.S. Treasury with maturities ranging from 10 to 30 years. Interest is paid semi-annually, and the bonds can be easily purchased in minimum denominations of $1,000 or multiples thereof.
Treasury Inflation-Protected Securities (TIPS), U.S.
A new age dawned in the U.S. capital markets on Wednesday, January 29, 1997. The United States Treasury made its first issue of an inflation-linked bond, the 3.375% of 2007. This bond increases its principal by the changes in the Consumer Price Index (CPI). Its interest payment is calculated on the inflated principal, which is eventually repaid at maturity. This gives an investor the ability to protect against inflation while providing a certain "real" return over an investment horizon. Despite critics and uncertainty over the "great inflation debate", the auction went extremely well with interest five times the size of the $7.0 billion issue. The "real yield" of the TIP reached more than 3.5% in the "when issue" trading before the auction but fell dramatically to 3.3% in the aftermarket trading.
The issue of the TIP is a major development in the U.S. capital markets. For the first time, investors will be able to achieve a certain "real return" above inflation over their investment period. A normal or "nominal" bond pays its interest on a fixed principal amount, which is repaid at maturity. Inflation is a major risk to a nominal bond holder, since increasing inflation means reduced "purchasing power" in the face of increasing prices.
A good example of a TIPS investor would be an individual setting aside retirement funds in an IRA. Purchasing a $100,000 TIPS would lock in this amount in real terms. Whatever the inflation rate until the eventual retirement, the $100,000 would be completely "indexed" or have its value increased to offset any increases in inflation.
The TIPS issue used the structure of the Canadian inflation-linked program, which allows for "stripping" or the creation of "zero coupon" bonds. This separates the coupon payments or "coupons" from the principal amount or "residual". While this has been done for years with nominal bonds, it promises a new capability for investors. Using the "real zeroes", an investor could place an amount in a specific term and ensure an "inflation proof" result. For example, an insurance company wishing to set funds aside to pay claims which are linked to inflation could purchase the exact amount of "real zeroes" to cover the claim in today's dollars. No matter what the intervening inflation, the amount invested would grow to exactly equal the amount required to settle the claim.
The value of the inflation protection of the TIPS is being hotly debated in investment circles. To simplify the arguments, we can compare the yield available on a normal or "nominal" 10-year Treasury Bond to the TIP. At current yields, a nominal 10-year Treasury yields 6.4%. If we subtract inflation, currently 3.3% for the CPI, we get a "real yield" of 3.1% (6.4 - 3.3 = 3.1). The current yield of the TIPS is 3.3% "real". This means that the real yield of the TIPS is .2% higher than the same term nominal Treasury. We can think of it another way. Add 3.3% inflation to the TIPS yield of 3.3% and we have a total yield of 6.6% which exceeds the nominal treasury yield of 6.4%. Given that the TIPS is inflation-risk free, this doesn't make a lot of sense. We receive more interest for a an inflation-protected bond than a normal risk bond! The reasons for this are threefold:
First, with any new investment, especially in the conservative bond market, the first issues come "cheap", or inexpensive relative to standard "plain vanilla" issues, which attracts investors and compensates for the new nature of the security. The second reason is the smaller size of the TIPS market makes it "illiquid" or harder to trade than the huge existing Treasury market. Given the $7.0 billion size of the initial TIPS issue, this might come as a surprise, but this is small change compared to the hundreds of billions of existing Treasury bonds. The third and perhaps most important reason is the uncertainty over the status of the current CPI index. Many politicians, government officials and even Alan Greenspan, the Federal Reserve Chairman, are of the belief that the current CPI, as calculated by the Bureau of Labor Statistics (BLS), is overstated.
The Great Inflation Debate
Conveniently, a lowering of the CPI would help to balance the budget and this is the political incentive. The widespread and vocal discussion has created much uncertainty in the marketplace about TIPS, since its principal is increased by the published CPI. The thesis that the CPI is overstated by .5% to 1.5% has led to a much higher yield on the TIPS than would probably otherwise be the case. Not a smart move by the government and those involved, but whoever said that politicians were smart? The arguments for and against the CPI's accuracy are being mustered but in any event, the eventual resolution will be well into the future. So far we've only heard one side of the story and the other will soon come out. Any restatement will take time and research. This could provide some shorter term value to prescient investors
Treasury Investment Growth Receipt (TIGR)
A Treasury bond that has been stripped of its coupons, with ownership of individual coupons, or of bond principal sold at a discount as a zero coupon. All interest is paid at maturity.
Treasury Notes, U.S.
U.S. Government obligations that are available for terms of 1 to 10 years. Interest is paid twice a year, or semiannually, and the bonds can be purchased in denominations of $1,000 or multiples thereof. See also notes.
Treasury securities
Debt securities issued by the U.S. Treasury that are backed by the full faith and credit of the U.S. government.
Treasury STRIPS U.S.
Treasury zero-coupon program standing for Separate Trading of Registered Interest and Principal of Securities. These securities are sold at a discount, and they redeem for their full face value at maturity. They are offered in amounts of $1,000 or more, and pay no interest (the interest is reinvested over the life of the security). STRIPS and zeroes are well suited to such long-term goals as college planning and retirement savings.
Trigger
The market interest rate at which the terms of a security might change. Triggers are common on index amortization notes and range securities.
Triple net lease
A lease that requires the tenant to pay all expenses of the property being leased in addition to rent. Expenses covered in such a lease include taxes, insurance, maintenance, utilities, etc.
Trustee
A bank designated by the issuer as the custodian of funds and official representative of bondholders.