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Glossary of Financial Terms — K, L 






Labor Force

Those people either who have jobs or who are looking for work. the figures are obtained through monthly inquiry from a rotating sample of households.


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Labor Force Participation Rate

The labor force as a percentage of the total population.


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A fixed income portfolio strategy in which assets are distributed evenly over a range of maturities.


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Leading Indicators

Those economic statistics that in the past have turned up or down in advance of the general business situation. The Leading Indicator Index is a composite of several such series. There are also Coincidental Indicators (that move with the situation) and Lagging Indicators (that move after the situation).


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The legal status of a bond generally used to indicate whether it is a legal investment for savings banks in Connecticut, Massachusetts, New Hampshire, New Jersey and/or New York. Also called Legal Status.


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Legal List

A list of prime investments selected by various states, into which certain institutions and fiduciaries may invest their funds.


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To execute the first side of a spread trade. This presumes that each side is done separately to establish the spread.


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Lehman Brothers U.S. TIPS index

An index is a statistical yardstick, composed of a basket of securities defined by a set of characteristics. The Lehman Bothers U.S. TIPS index is considered a benchmark for funds investing primarily in real return bonds.


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Less the Reallowance

Refers to a trade between two NASD member dealers of an item subject to syndicate restrictions at the maximum permissible discount. Often abbreviated as “less the re.”


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Letter of Intent

Interim agreement that summarizes the main points of a proposed deal, or confirms that a certain course of action is going to be taken. Normally, it does not constitute a definitive contract but signifies a genuine interest in reaching the final agreement subject to due diligence, additional information, or fulfillment of certain conditions. The language used in writing a letter of intent is of vital importance, and determines whether it is only an expression of intent or an enforceable undertaking. Also called ‘memorandum of understanding’ or ‘precontract’.


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1. The effect of the use of senior capital (bonds and preferred stocks) over junior capital (common stock) in capitalizations.

2. A measurement of a portfolio’s exposure to market risk.


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Liability-Driven Investing

Many institutional investors have liabilities they must pay in the future, such as the retirement benefits that pension funds pay. To meet these future obligations, pension funds, and other institutions invest in a pool of assets with the goal of paying their future liabilities from the returns on those assets. One way institutions can meet their liabilities is to construct a portfolio of assets—usually longer-dated bonds—that generates cash flows matching the liability cash flows.


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Lifting a Leg

Closing out one side of a spread trade by making the transactions with the securities involved individually to eliminate the spread.


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The maximum daily price change of a futures contract above or below the previous day’s settlement price.


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Limit Order

An order to buy or sell at a specific price or better.


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Lipper Indexes

A series of indexes that tracks the financial performance of different types of mutual funds. Lipper, which is owned by Reuters, allows investors to benchmark the performance of a mutual fund against an index of 30 funds that all belong in a particular investment category.


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The ability to convert an investment into cash promptly with a minimum risk of principal.


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Liquidity Preference

The increased willingness of investors to hold issues that are more liquid. In the Treasury market, where the shorter maturity issues are generally more liquid, the yield curve often has a rising (positive) shape due in part to liquidity preference.


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Liquidity Premium

The extent to which yields are lower on more liquid securities die to the relative ease with which such securities can be bought or sold in the secondary market.


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An issue traded on the New York Stock Exchange or other major exchange.


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Loan-to-Value Ratio

The relationship between the amount of a mortgage loan and the appraised value of the property, expressed as a percentage of the appraisal value.


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When both the buyer and the seller wish to execute at the same price and neither wants to concede the commission to the broker to execute the transaction.


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London Interbank Offering Rate

Every morning, banks submit to Reuters Group PLC what it would cost them to borrow money across 10 currencies and 15 maturities ranging from overnight to a year. High and low groups are thrown out, and a Libor is dispatched to trading desks globally.


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Long (Position)

Signifies an investment holding expected to rise in value with the market for assets of that type.


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Long-Dated Bonds

Bonds with a maturity of more than 15 years from the date of issue.


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Information contained herein is believed to be reliable, but the accuracy and completeness of this material cannot be guaranteed.


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