# Basic Bond Vocabulary These are some of the terms used in the Clydesdale documents. They are here defined and explained on a basic level. If more details or precision is desired it can be provided. #### Alpha A measure which can help you identify whether an actively managed portfolio has added value in relation to risk taken relative to a benchmark index. A positive Alpha indicates that a manager has added value. #### YTM - Yield to Maturity The IRR of the bond payments if you hold it to maturity. #### YTW - Yield to Worst The IRR of the minium bond payments you would receive from the bond. It takes into account all possible allowable redemption options that may be in a bond. #### Duration Measures a bond sensitivity to interest rate changes. Example: Duration = 5, then 1% change in a bond yield would be predicted to cause a 5% change in bond price. Please note this formula has a good number of limitations: for instance it does not work for large changes in interest rates and does not consider credit risk and is broadly speaking mainly an estimate of sensitivity. #### SD - Standard Deviation Standard deviation measures how dispersed returns are around the average. A higher standard deviation indicates that returns/yields of a bond are spread out over a larger range of values and thus, more volatile. This is the principal, basic measure for risk to look at. #### Beta Beta is a measure of the tendency of securities to move with the market as a whole. A beta of 1 indicates that the security's price will move with the market. A beta less than 1 indicates the security tends to be less volatile than the market, while a beta greater than 1 indicates the security is more volatile than the market. #### Total Ex-Ante Risk (BlackRock specific) Ex-ante risk is defined as annual expected volatility and is calculated using data derived from existing and alternate portfolio holdings, using the Aladdin portfolio risk model. Ex-ante active risk is the standard deviation of the difference between portfolio returns and the specified benchmark portfolio returns #### Maximum Drawdown Maximum drawdown measures the maximum fall in the value of a bond, as given by the difference between the value of the lowest trough and that of the highest peak before the trough. #### Sharpe Ratio Sharpe Ratio = (historical return of asset - historical risk free rate)/standard deviation of asset return Tells you how much return over risk free return you are receiving for the risk you are incurring. You can consider it some form of risk-adjusted performance of an asset. The higher the better. #### Shaken, not stirred No explanation necessary.