NIP = New Issue Premium

It is a premium over the existing bonds for a given company that acts as an incentive for investors to buy the same company’s new debt. 

There is generally an extra spread offered by the issuer to incentivise investors to participate in the primary transaction rather than buy a similar bond in the secondary market. This difference is called the “new issue premium” and is the difference between the yield on the bond offered at the primary issue and the yield on the same bond subsequently traded in the secondary market.

There are a number of factors that will determine the size of the premium, and if there is a premium offered at all. The size of the issue, market conditions and appetite for the credit are some of the determinants.

In normal market conditions, this premium is usually positive but small. However, NIPs might rise substantially as credit investors’ appetite to purchase new bonds is feeble, requiring handsome compensation to absorb the new bond supply in a highly volatile market environment.