back up

verb
Updated on: 26 Jul 2017

Definition of back up

  1. intransitive verb
  2. :  to accumulate in a congested state traffic backed up for miles

  3. transitive verb
  4. 1 :  to move into a position behind (a teammate) in order to assist on a play

  5. 2 :  hold back 1

  6. 3 :  to make a copy of (a computer file or data) to protect against accidental loss; also :  to make copies of all the files on (a hard drive)

First Known Use of back up

1801


Financial Definition of BACK UP

back up

What It Is

A back up is an increase in a security’s price, yield, or spread before issuance.

In other circles, back up means replacing a long-maturity security with a short-maturity security in order to capitalize on short-term interest rates that are higher than long-term interest rates.

How It Works

For example, let’s assume that Company XYZ wants to issue $100 million in 10-year bonds. The yields on bonds of similar quality and risk were about 5% when Company XYZ hired the underwriter to handle the bond issue, but since then the required yields have increased to 7%. This means Company XYZ has to issue the bonds at a bigger discount in order to keep the issue competitive, and thus it will obtain less cash from investors at the time of the sale.

This increase in the cost of issuing the securities is a back up.

Why It Matters

Back ups can be very detrimental to issuers, especially if they are relying on a very specific amount of money to come from the issue, and even more especially if the company’s success hinges on the reinvestment of those funds.



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