Category: Business – This Explainer

Treasury Floating Rate Notes, or FRNs, are two-year marketable U.S. government securities whose interest changes with recent 13-week Treasury bill rates. This explainer covers the index rate, auction spread, weekly resets, quarterly payments, discount margin, secondary-market pricing, interest-rate sensitivity, taxes, reinvestment, and how FRNs differ from fixed-rate Treasury notes.

A certificate of deposit, or CD, is a time deposit that generally pays interest in exchange for keeping funds at a bank for a stated term. This explainer covers fixed and variable rates, maturity, early-withdrawal penalties, renewal, FDIC insurance limits, ownership categories, brokered and callable CDs, market-linked products, liquidity, and the difference between deposits and securities.

A money market fund is a mutual fund that invests in short-term, liquid debt, cash, and cash equivalents. This explainer covers government, prime, and tax-exempt funds, stable and floating net asset values, dividends, liquidity fees, institutional and retail structures, credit and liquidity risk, expenses, and why fund shares are not FDIC-insured bank deposits.

A repurchase agreement, or repo, is short-term financing in which securities are sold with an agreement to buy them back later at a higher price. This explainer covers borrower and lender perspectives, collateral, repo rates, haircuts, margin, tri-party settlement, general and special collateral, counterparty and liquidity risk, and the role of repo in securities markets and monetary policy.

The federal funds rate is the interest rate on overnight unsecured transactions in reserve balances among eligible institutions. This explainer covers the FOMC target range, the effective federal funds rate, transaction data, interest on reserve balances, overnight reverse repos, policy implementation, market transmission, and why the Fed does not directly set every consumer borrowing rate.

The prime rate is a reference lending rate determined by individual banks and used in pricing many business, credit-card, and consumer loans. This explainer covers bank prime quotations, the reported consensus prime rate, its relationship to the federal funds target, prime-plus spreads, variable-rate resets, borrower credit risk, contracts, and why the Federal Reserve does not directly set prime.

The Secured Overnight Financing Rate, or SOFR, is a broad measure of the cost of borrowing cash overnight against Treasury securities. This explainer covers repo transactions, New York Fed administration, daily publication, volume-weighted calculation, SOFR averages and index, overnight versus term conventions, loan and derivative use, fallbacks, and basis risk.

A yield curve plots yields for comparable debt across different maturities at one point in time. This explainer covers upward, flat, and inverted shapes, Treasury curves, par and spot yields, forward rates, policy expectations, term premiums, inflation, supply and demand, curve trades, credit curves, and why one curve cannot predict the economy with certainty.

An inverted yield curve occurs when yields on some shorter maturities exceed longer-maturity yields for comparable debt. This explainer covers monetary-policy expectations, inflation outlooks, term premiums, common Treasury spreads, bank margins, market pricing, historical recession signals, false positives, timing uncertainty, and why inversion is an indicator rather than a mechanical cause or certain forecast.

Securitization pools loans or receivables and finances them by issuing securities backed by their cash flows. This explainer covers originators, special-purpose vehicles, true sale, servicing, credit enhancement, tranches, payment waterfalls, ratings, disclosure, retention, prepayment and default risk, and why moving assets does not make their underlying risk disappear.

Asset-backed securities, or ABS, are securities supported by cash flows from pooled financial assets such as auto loans, credit-card receivables, or leases. This explainer covers issuing trusts, collateral pools, servicing, revolving and amortizing structures, tranches, credit enhancement, prepayment, defaults, ratings, disclosure, liquidity, and the difference between ABS and ordinary corporate bonds.

Mortgage-backed securities, or MBS, represent claims on cash flows from pools of mortgage loans. This explainer covers pass-through structures, agency and private-label issuance, guarantees, servicing, principal and interest payments, prepayment and extension risk, negative convexity, tranches, credit risk, liquidity, and why government-related names do not give every MBS the same backing.