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46 Cards in this Set
- Front
- Back
Auction-Based |
-US GOV Debt is sold at auction -Weekly auction: Tbills -Monthly Auction: all other Treasury debt -direct Us debt: highest rating -agency debt: implicit backing of the US |
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Tbonds |
-30 year maturity -multiples of 100$ par - i paid semi-annually -quoted in 32nds -callable 5 years prior to maturity
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TStrips |
-Separate Trading of Registered Interest and Principal of Securities -treasury zero coupon bonds -sold at discount and paid on at maturity |
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TReceipts (Old TSTRIPS) |
-large basket of 30 year T bonds deposited with a trustee -the tbonds are stripped of coupons and sold representing the payment at maturity -imagine a 30 year zero coupon *if you want a 6 months zero coupon they would just pay you the 1st 6months interest payment -are not subject to reinvestment risk -subject to price swings -AAA TSTRIPS |
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TIPS |
-Treasury Inflation Protection -fixed interest rate over the life of the security *** the interest rate is adjusted to the CPI -semi- annual payments are fixed -NOT subject to purchasing power risk
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TNotes |
- maturity range from 1<t<10 years -multiples of 100$ par -semi annual i payments - quoted in 32nds -non-callable |
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Tbills |
-issued with 1 3 6 12 month maturities -issued at a discount from par -quoted on a discount yield basis |
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Cash Management Bills |
-issued with maturities from several days to 6 months -sold on a need basis depending on the treasuries cash needs -issued at a discount from par $100 min with slightly higher interest rates than Tbills |
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T Debt Tax Implications |
-interest income is subject to FED but not state and local -STRPS and TOPS are only suitbale for retirement plans -discount on TIPS is annually taxable -annual inflation adjustment is also taxable |
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Federal Farm Credit Banks Funding Corp |
Us agency that provides farmers with short term loans for harvesting and planting -and long term to lease land -available form large commercial banks -AAA (backed implicitly by gov) .25+ backing than government bonds |
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Farm: Discount Notes |
- 1 year or less -sold at a discount with 5k FV -1000$ increments thereafter |
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Farm: Designated Bonds |
-non callable 2-10 year maturities -semi annual payments -100 increments there after |
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Farm: Retail Bonds |
- 1000 increments with estate planning feature -"survivor's option" bonds redeemed at par plus accrued interest at death -estate taxes due 9 months after death, can be redeemed to pay death tax liability |
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Farm: Bonds |
- callable - maturity of 30 years -5k FV min -1k increments there after |
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FHLB |
Federal Home Loan Banks -loan funds to savings and loans intituations -collateral S&L mortgages |
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FHLB: Discount Notes |
-1 year or less maturity -sold at discount FV 100k |
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FHLB: Bonds |
-10k FV -semi annual i payments -callable -maturity 30 year |
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Bullet Bonds |
-non callable bonds |
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MBS |
-pooling of mortgages fromm originating banks -break down pool in 25k FV -as mortgages are paid they pass through to the certificate holder -payments are monthly -"self-liquidating" each payment represents a piece of the interest and principal |
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Federal National Mortgage Association |
Frannie Mae -buys gov guaranteed and insured mortgages -income derived from spread between rate at which it borrows from public and the rate earned on mortgages -its debt is implicitly backed by US -Publicly Traded: Now listed on Pink Sheets |
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Government National Mortgage Association |
Ginnie Mae -loans directly guaranteed by the US government -builds mortgages pools |
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Federal Home Loan MortgageCorp |
-buys conventional mortgages that are not gov-insured or guaranteed |
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Student Loan Marketing Association |
Sallie Mae -purchases student loans from qualified lending institutions -sells debentures backed by these loans |
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Collateralized Mortgage Obligations |
-derivative security -fixed rate of interest -equal level payments -"self amortizing" each payment pays off interest and principal -30 or 15 year terms |
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Fixed Rate Mortgage |
-fixed monthly payment towards the mortgage -each payment represents a bit of the principal and interest -early year payments are mainly interest -late years are mainly principal -pre payment makes the principal drop faster |
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Payment Speed Assumption |
-30 year mortgages are paid off in 12 -15 year are paid off in 7 |
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Prepayment Risk |
-similar to call risk -home owner sold house and is paying off the balance -interest rates drop and the homeowner wants to refinance at lower rates - when the homeowner refinances the investor is forced to reinvest at the new lower rates |
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Extension Risk |
-risk that maturity will be longer than expected -the case when interest rates increase and the homeowner wants to lock in low rate |
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Plain Vanilla CMO |
-old cmos with simple repayment -as payments are received interest payments are distributed to each tranche equally -principal repayments are paid sequentially so that early tranches are paid off first |
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Planned Amortization Class |
(PAC) -principal payments made later than expected are distributed here -more certain maturity than companion class -protects against prepayment and extension risk |
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Companion Class |
-principal payments that are more than expected are distributed here -high level of prepayment risk -high level of extension risk |
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Target Amortization Class |
-target amount of principal paid each month -protects against pre payment risk -does not protect against extension risk |
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ZERO Tranche |
-does not receive payment until all interest and principal payments are made -greatest price volatility -greatest interest rate risk -0 call risk -0 reinvestment risk |
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Floating Rate Tranches |
-interest rate tied to an index -market risk is minimized since it is adjusted to the market |
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CMO: Interest Only |
-breaks off from the principal payments -only paid on interest received -prices move in the same direction as the market interest rates!! |
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CMO: Principal Only |
-only pays out on the principal payments -sells at a deep discount: high price volatility -prices shares inverse relationship to interest rates |
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CDO: Collateralized Debt Obligations |
-CMOS bundled from subprime mortgages |
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CMO |
-offered in 1k denominations -credit of underlying collateral -quoted in 32nds |
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Trading of GOV and Agency Debt |
-Secondary Market: 2nd market -OTC -participants: commercial bank, foreign banks, US Gov security dealers, full brokerage firms, FED |
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Primary Dealers |
-Citi Group, Goldman... 20 firms -appointed by the Fed |
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Secondary Dealers |
-buy and sell securities through primary dealers -smaller banks and brokerage firms |
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FED |
-dealer -maintains own account -OMO open market operations expansionary and contractionary -Us Gov Debt- offered at competitive bid -Agency Debt- offered by fiscal agents |
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Settlement: Tbills/ TNotes/ TBonds |
-regular way on next business day after trade date -cash settlement: same business day if in before 2:30pm -trades settle in Federal Funds -NEVER Trade Flat |
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Accrued interest: Treasury Debt |
Actual Day/Month/ Year Basis |
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Accrued interest: Agency Debt |
30/360 basis |
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Tax Status: Agency and T Dect |
-interest income subject to Federal income tax -discount on Tbills taxed as interest at end of year -STRIPS accreted and taxed annually |