Glossary
Short definitions for the terms used across the Feeds pages and articles. For fuller explanations, see Bonds 101 and Inflation 101.
Auction tail
How far a bond auction's final accepted yield lands above where the market was pricing the bond just before the auction. A tail means the government had to offer a higher rate than expected to sell everything, which is read as soft demand. The opposite, landing below, is called a stop-through. See Bond Auctions.
Basis point
One hundredth of a percentage point (0.01%). Rate moves are usually described in basis points because the changes are often small: a jump from 4.25% to 4.50% is "25 basis points."
Bid-to-cover ratio
At a bond auction, this is the total amount investors bid for divided by the amount the government actually offered. A ratio of 2.5 means investors wanted to buy two and a half times more than was on offer. Higher generally signals stronger demand; a weak ratio is often read as a warning sign. See Bond Auctions.
Breakeven inflation
The market-implied inflation forecast derived from comparing regular Treasury yields to inflation-protected Treasury (TIPS) yields of the same maturity. See Inflation 101.
Central bank policy rate
The core interest rate a central bank sets, which influences borrowing costs throughout that country's economy. Everything from mortgages to business loans tends to move in the same direction over time. See Central Banking.
Coupon
The fixed interest payment a bond pays its holder, usually expressed as an annual percentage of the bond's face value. Distinct from yield, which reflects the bond's current market price rather than its original terms.
CPI (Consumer Price Index)
The most commonly cited measure of inflation, tracking the price of a fixed basket of consumer goods and services over time. See Inflation 101.
Debt per person (debt per capita)
A country's government debt divided by its population, usually stated in US dollars so countries can be compared. It shows each resident's share of what the government has borrowed. Because it is converted to dollars, it also moves with exchange rates. See Debt by Country.
Debt-to-GDP ratio
A country's total government debt expressed as a percentage of its annual economic output (GDP). Used to compare debt burdens across countries of very different sizes. See Debt by Country.
External debt (foreign debt)
Everything a country's residents owe to lenders abroad, including the government, banks and companies. It is wider than foreign-held government debt, which counts only the government bonds owned by investors outside the country. Debt owed in a foreign currency gets harder to repay when the home currency weakens. See Debt by Country and Currencies.
Foreign-held debt
The share of a government's debt owned by investors outside the country, such as foreign central banks, pension funds and banks. A high share can mean cheaper borrowing while foreign demand holds up, and more exposure if those buyers step back. See Debt by Country.
Gross general government debt
Everything owed by all levels of government (national, state or provincial, and local) before subtracting any financial assets the government holds. It is the broadest common measure of public debt and the one used for international comparisons. See Debt by Country.
Interest-to-revenue ratio
The share of a government's revenue that goes to paying interest on its debt. It shows how much of each tax dollar is already committed to past borrowing before any services are paid for, and it rises quickly when rates go up on a large debt. See Debt by Country.
Maturity
The date on which a bond's face value is repaid in full to whoever holds it. Bonds are often referred to by their maturity: a "10-year Treasury" matures ten years after issuance.
PCE inflation (Personal Consumption Expenditures price index)
A US measure of inflation published monthly by the Bureau of Economic Analysis. It covers a wider range of spending than CPI, including costs paid on people's behalf such as employer health insurance, and it updates its basket as buying habits change. The Federal Reserve uses it for its 2% inflation target, and it usually runs a little below CPI. See Inflation 101 and Central Banking.
Primary dealer
A bank approved to bid at every government bond auction and expected to buy whatever other investors don't. When dealers end up with a larger-than-usual share of an auction (the dealer takedown), it usually means outside demand was weak. See Bond Auctions.
Quantitative easing (QE)
A policy where a central bank buys large quantities of government bonds (or other assets) to push more money into the financial system and hold longer-term interest rates down, typically used when short-term policy rates are already near zero.
Sovereign credit rating
An agency's assessment (S&P, Moody's or Fitch) of how likely a government is to repay its debt in full and on time. Ratings run from AAA, the strongest, down through BBB- (the lowest "investment grade") to D for default. A downgrade can raise what the government pays to borrow. See Debt by Country and Risk Rankings.
Sovereign default
When a national government fails to make a scheduled debt payment in full or on time. Defaults can be outright (missed payments) or "soft" (restructuring debt on worse terms for lenders than originally agreed).
Treasury auction
The process by which a government sells new bonds to investors. Results (yields, bid-to-cover ratio, size) are a real-time read on investor appetite for that government's debt. See Bond Auctions.
Treasury bill (T-bill)
A short-term government debt security that matures in one year or less, such as the 4-week, 8-week or 26-week bills the US Treasury auctions every week. T-bills pay no coupon; they are sold below face value and repay the full face value at maturity, and the difference is the investor's return. Because governments refinance large amounts of debt through bills, weak demand at these auctions is watched closely. See Bond Auctions and Alerts.
Yield
The effective annual return an investor earns from holding a bond, accounting for its price, coupon, and time to maturity. Moves opposite to price: yields rise when bond prices fall. See Bonds 101.
Yield curve
A chart or table lining up bond yields by maturity (2-year, 10-year, 30-year, etc.). Its shape is widely watched as a signal of investor expectations about future growth and inflation. See Feeds.
Yield curve steepening (10-year minus 2-year spread)
When the gap between long-term and short-term bond yields widens, most often measured as the 10-year Treasury yield minus the 2-year yield. It can happen because long-term yields rise faster or short-term yields fall faster. A steeper curve usually reflects changing expectations for growth, inflation and central bank policy, and it can raise what a government pays to borrow for longer periods. The opposite is called flattening. See Central Banking and Alerts.