Bond

Generic name for a tradable, long-term debt security raised by a borrower who agrees to make specific payments, usually regular payments of interest and repayment of principal on maturity. (See also treasury bond, euro bond, gilt-edged stock.)

Basis point

One hundredth of a percentage point. Basis points are used in currency and bond markets where the sizes of trades mean that large amounts of money can change hands on small price movements. Thus if the yield on a treasury bill rose from 5.25% to 5.33%, the change would have been eight basis points.

Balanced fund

A mutual fund that invests in a combination of ordinary share and bonds (including government debt). As such, it has a wide spread of assets and could be considered medium risk, in contrast to funds that are invested wholly in equities (high risk) and wholly in bonds (low risk). The consequence of this should be that the investment return of a balanced fund will be pedestrian compared with an equity fund during a bull market, but will do well during a bear market.

Accrued interest

The interest that has been earned on a bond since its most recent dividend was paid. The market price for bonds ignores this element; it quotes the price of bonds "clean" of accrued interest. However, a buyer would have to pay for the interest that has accrued. Imagine a bond with a 10% coupon. If it were quoted in the market at $125 120 days after the last dividend had been paid then, ignoring dealing costs, a buyer would have to pay $125 plus 120/365 of $10; that is, $128.29.