Fixed Income Overview Flashcards
coupons quoted
as a percentage of par
Bond priced above par (premium) quoted
quoted at yield to earliest call
Bond Priced below par (Discount) quoted
Priced to latest call. This is because if it’s called sooner you made the money back sooner.
Treasury Settlement
t+1
Treasury interest rate time period
365 day
interest due calc munis
(Days held / 360) * annual interest amount
Bank Examinations
Banks are examined every 2 years
Brokers Broker taking positions
A brokers broker transacts they don’t take/hold positions
Typical Face amount of a muni
5K
As a bond approaches maturity the price will
Pull to Par
Offering circular
Prepared by
prepared by broker to disseminate info to clients.
balloon maturity
A serial offering with a disproportionately larger part of the bond principal repaid prior to final maturity.
Series of Bonds
Staggered offering to raise funds as needed. can be different bond types
Ratings when the issuer and insurer have different ratings
If the insurer of an offering has rating Aaa but the issuer has a Ba rating the issue would get the Aaa rating.
Refunded issues are typically invested in
SLGS (Slugs)
defeased
when the escrow account is fully funded the issue is defeased meaning it no longer counts towards the issuer’s debt ceiling and any associated collateral is released.
sequestration
forced budget cuts that could lead to a call of outstanding bonds.
Margin & Expense deductions for munis
Individuals
You can not deduct the expenses or interest for loans used to acquire the bonds.
Margin & Expense deductions for munis
Banks
Banks can purchase up to 10 million face using margin/loans and deduct up to 80% of the interest cost on the margin loan.
Bond Councils Legal Opinion
Unqualifed vs. Qualified
Unqualified is favorable it means the council thinks interest will be free from federal taxes. A qualified opinion means they can’t guarantee it.
Washington D.C. Bonds
Not a state and is subject to state taxation
municipal interest vs. capital gains
Taxation
Capital gains due to buying low and selling high are taxable
Coterminous vs. overlapping
Coterminous refers to 2 or more taxing agencies that share the same boundaries and issue debt separately.. overlapping debt is two taxing agencies taxing the same property or service. states don’t have coterminous debt
Development Revenue Bonds
used to construct facilities or purchase equipment that is then leased to a corporation. May be taxable and subject to AMT.
Lease rental bonds
To develop office space buildings for a municipality not a private entity