IDB: Inter-Dealer Broker, in this context a broker that provides facilities for dealing in bonds between market makers.

IG: Index-linked gilt whose coupons and final redemption payment are related to the movements in the Retail Price Index (RPI).

Immunisation: This is the process by which a bond portfolio is created that has an assured return for a specific time horizon irrespective of changes in interest rates. The mechanism underlying immunisation is a portfolio structure that balances the change in the value of a portfolio at the end of the investment horizon (time period) with the return gained from the reinvestment of cash flows from the portfolio. As such, immunisation requires the portfolio manager to offset interest-rate risk and reinvestment risk.

Implied repo rate: The break-even interest rate at which it is possible to sell a bond futures contract, buy a deliverable bond, and repo the bond out. See cash and carry.

Implied volatility: The volatility used by a dealer to calculate an option price; conversely, the volatility implied by the price actually quoted.

Index option: An option whose underlying security is an index. Index options enable a trader to bet on the direction of the index.

Index swap: Sometimes the same as a basis swap. Otherwise a swap like an interest rate swap where payments on one or both of the legs are based on the value of an index – such as an equity index, for example.

Indexed notes: Contract whereby the issuer usually assumes the risk of unfavourable price movements in the instrument, commodity or index to which the contract is linked, in exchange for which the issuer can reduce the cost of borrowing (compared with traditional instruments without the risk exposure).

Indirect: An exchange rate quotation against the US dollar in which the dollar is the base currency and the other currency is the variable currency.

Initial margin: The excess either of cash over the value of securities, or of the value of securities over cash in a repo transaction at the time it is executed and subsequently, after margin calls.

Interbank: The market in unsecured lending and trading between banks of roughly similar credit quality.

Interest rate cap: See cap.

Interest rate floor: See floor.

Interest rate guarantee: An option on a specified interest rate, usually referenced to Libor.

Interest rate option: Option to pay or receive a specified rate of interest on or from a predetermined future date.

Interest rate swap: An agreement to exchange a series of cash flows determined in one currency, based on fixed or floating interest payments on an agreed notional principal, for a series of cash flows based in the same currency but on a different interest rate. May be combined with a currency swap.

Intermarket spread: A spread involving futures contracts in one market spread against futures contracts in another market.

Internal rate of return: The yield necessary to discount a series of cash flows to an NPV of zero.

Interpolation: The process of estimating a price or rate for value on a particular date by comparing the prices actually quoted for value dates either side. See extrapolation.

Intervention: Purchases or sales of currencies in the market by central banks in an attempt to reduce exchange rate fluctuations or to maintain the value of a currency within a particular band, or at a particular level. Similarly, central bank operations in the money markets to maintain interest rates at a certain level.

In-the-money: A call (put) option is in-the-money if the underlying is currently more (less) valuable than the strike price. See at-the-money, out-of-the-money.

Intrinsic value: The amount by which an option is in-the-money.

Inverse floater: A floating-rate note structured so that it’s coupon falls as interest rates rise, and vice-versa.

Invoice price: For exchange-traded bond futures contracts, the price received by the short future; calculated as (conversion factor * futures price) + accrued interest.

IRG: See interest rate guarantee.

IRR: See internal rate of return.

ISMA: The International Securities Market Association. This association compiled with the PSA (now renamed the Bond Market Association) the PSA/ISMA Global Master repurchase Agreement.

Issuer risk: Risk to an institution when it holds debt securities issued by another institution. (See also credit risk).

Iteration: The repetitive mathematical process of estimating the answer to a problem, by trying how well this estimate fits the data, adjusting the estimate appropriately and trying against it, until the fit is acceptably close. Used, for example, in calculating a bond’s yield from its price.