Buzzword of the Week: Back Up

trailer4 CFO Services Northern VirginiaPerhaps I’m being too forward in my thinking. Investopedia tells us this week about Back Up, a slang term for the movement in spread, price or yield of a security, which makes it more expensive to issue. Back up is characterized by an increase in bond yields and a decrease in price. The price of a security “backs up” when a company finds the security more costly to issue when raising funds.

When a back up occurs, the fund raising efforts of a company are diminished. For example, if interest rates increase, the required yields on most bonds will rise as well. This forces a company to either raise the coupon on their bond issue, which increases the interest payment, or sell the bonds at a discount, reducing the level of incoming cash.

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