As with any market or product, buying and selling bonds has its own lingo. Below are some of the key terms to know.

Coupon : Another word for the interest rate paid by a bond. For instance, a $1,000 bond with a 6% coupon will pay $60 a year. The word coupon is used because some bonds really had a paper coupon attached to them, which could be redeemed for the payment. 

Par : Also known as the face value of a bond, this is the amount a bondholder receives when the bond matures. If interest rates rise higher than the bond’s rate, the bond will trade at a discount, or below par; if rates fall below the bond’s rate, it will trade at a premium, or above par.

Yield to Maturity (YTM ): A measure of return, or yield, on the bond under the assumption that it will be held until the maturity date.

Duration : A bond price’s sensitivity to a change in interest rates, measured in years. Bonds with longer durations are more sensitive to interest rate changes. If you’re in a bond with a duration of 10 years and rates rise 1%, you’ll see a 10% decline in the bond’s price.

Callable Bond : Some bonds have “call provisions,” which means the bond issuer can “recall” the bond, or pay back your principal, before its maturity date. Callable bonds usually have a higher return to make up for the risk that the bonds might be called early.  

Zero-Coupon Bond : Zero-coupon bonds don’t pay any interest but are issued at deep discounts. The investor profits because the bond can be redeemed for its full face value once it matures.

Convertible Bond : Essentially a bond with a hidden stock option; a convertible bond can be converted into a predetermined allocation of the company’s equity.