Negative arbitrage is the lost profits of holding debt proceeds in escrow until the project can actually be funded.
Negative arbitrage occurs if the prevailing interest rates fall during this period of time, which can last from a few days to years.
Negative arbitrage costs are essentially the difference in a borrower’s net cost to lenders less what it can earn by using those proceeds to borrow again.
Callable and redeemable bonds demonstrate ways in which issuers can protect themselves from negative arbitrage.
Average life is the average length of time it takes to pay off the outstanding principal on a debt instrument, such as a treasury bill, bond, loan, or mortgage-backed security.
Hard call protection or absolute call protection is a condition of a callable bond, according to which the issuer cannot exercise the call and redeem the bond before a specified date, usually three to five years from the date of issue.
A harmless warrant is a provision that requires the holder of a bond to return the bond to the issuer if he buys another bond with similar terms from the same issuer.
The high yield bond spread, also known as the credit spread, is the difference between the yield on a high yield bond and a benchmark bond such as an investment grade or treasury bond.
Japanese government bonds (JGB) are bonds issued by the Japanese government that have become a key element in the country’s central bank’s efforts to boost inflation.