Chapter 8 Flashcards
What is the maturity on a T-Note?
- 2-10 years
What is the maturity on a T-Bond?
- Greater than 10 years
What are TIPS?
Interest?
How does principle fluctuate?
Book entry increments and term?
- Interest bearing and marketable security with fixed interest rate.
- Principle amount in which interest is pay changed with fluctuations in CPI
- $100 increments, 5, 10, 30 year terms
What is the maturity on a T-Bill? terms?
- Less than 1 year, sold in 4, 13, 26 and 52 weeks
What are T-Bills?
- Short term security, sold at a discount, with no semi-annual interest payment
How are T-Bills Priced?
How is it quoted?
- Quoted on a discount yield basis, not % of par
- High yields have larger discount and lower price
- Dynamic bid and ask quotation system
- Interest earned on actual price, not par value
What are Treasury STRIPS?
Who backs?
How is it quoted?
- Allows investors to buy T-Notes and T-Bonds and separately resell the coupon and principle payments as zero-coupons
- Back by US Treasury
- Quoted on Yield Basis
What are cash management bills?
- Unscheduled short-term debt offerings (possible 1 day) that smooths treasury flows
- Issued at a discount and matures at a discount
When are auctions for T-Bills? and when are they issued?
- Weekly for 3 and 6 month every Monday, 4 month every Tuesday
- Month for 12 month
- Issue on he Thursday following the auction
When are the auctions for T-Notes?
- 2 and 5 year sold monthly
- 10 year sold quarterly (Feb, May, Aug, Nov)
What is a competitive tender?
- When Security firms compete with each other through an automated system
- They pick the price and yield they are willing to buy at.
What is a non-competitive tender?
- Individuals, their bid is filled first
- Must accept the price and yield which is determined by the auction
- Agrees to pay the lowest price
What are Agency Securities? Issued by? backed? etc.
Federal agency securities?
- Debt instruments issued and guaranteed by federal agencies and Government sponsored enterprises
- No backed by US Gov’t
- Have a low credit risk AAA rated
- Entered in book-entry form 1/32 increments
- Have a higher yield and incredibly safe.
- Back by US Gov’t
What are GSE’s? examples?
- They are publicly chartered and privately owned
- FFCB, FHLB, SLMA (Sallie Mae)
What are Federal Farm Credit Banks? Issuing’s? Tax status?
- Banks that provide funds for banks of cooperatives, Intermediate Credit Banks, and federal land Banks
- Issued short term notes and ST and LT interest bearing bonds
- Subject to Federal Tax Only
What are Federal Home Loan Banks? backing? tax status?
- Issuers of discount notes (<1 year) and consolidated bonds(1-30 years)
- Not backed by Us Gov’t
- Subject to Federal Tax Only
- Treasury can by $4B
What are Student Loan Marketign Association?
Sallie Mae
- Liquidity for student loan makers
- Provides financing for state student loan agencies
What are Mortgage Backed Securities? who are they issued by?
- Debt secured by pools of mortgages
- Ginnie Mae
- Fannie Mae
- Freddie Mac
What are pass-through securities?
- Most commonly issued security by gov’t agencies
- Agency purchases a pool of mortgages where interest in the pool is sold to investors
- Owners are entitles to cash flow
- Fully negotiable and have the ability to be sold in the secondary market
What is the Federal Home Loan Mortgage Association? how does it raise money? backing? taxability?
Freddie Mac
- Provides liquidity for insured savings institutions in need of extra funds to finance new housing
- Purchases residential mortgages from saving institutions
Raises money by issuing:
- Mortgage backed bonds
- Pass-Through Certificates
- Guaranteed mortgage backed certificates
- Fully Taxable and backed by other agencies
What is the Federal National Mortgage Association? how does it raise money? backing? taxability?
Fannie Mae
Raises money to buy:
- Insured federal housing administration
- Veterans administration
- Conventional residential mortgages
- Backed by authority to borrow from treasury
- Fully Taxable
What is Gov’t National Mortgage Association? taxability? backing? maturity/avg life?
Ginnie Mae
- Operates within US Dep of housing and urban dev
- Provided financing for residential housing
- Fully Taxable
- Backed by US Gov’t
GNMA guarantees monthly payments
Maturity of 25-30 but avg life 12-14
What is the investor profile of an induvial who wants Agency Securities?
- Conservative
- Wants little risk
- Monthly payments
- Higher yield than treasury securities
What are Collateralized Mortgage Obligations? secured by? value?
- MBS that takes the principle and interest payments and separated them into various classes known as Trenches
- Investors have the ability to choose yield, maturity, and risk expose
- Minimized prepayment risk for investors
- Secured by FNMA, GNMA, FHLMC pas-throughs
- Value is derived from underlying MBS
