Unit 4- Debt Securities Flashcards
Where can the terms of a bond be found?
In the Bond Indenture (aka: Trust Indenture)
Define: Paying Agent
Is responsible for ensuring interest payments of a debt security are sent to investors.
Treasury bill maturity dates?
4, 8, 13, 26, and 52 weeks.
Longest maturity of commercial paper?
270 days
Features of a “jumbo CD” (aka: negotiable CD)
- $100,000 minimum purchase (often $1 million)
- Only money market instrument to not he issued at a discount. Pays semi-annual interest.
- FDIC insured, but only up to $250,00(note: not backed by the bank). They are unsecured.
- Can be transferred.
- Typical maturity is less than one year, but can be longer.
Define: Basis
Yield of maturity
Define: bond “duration”
The amount of time of takes for the cash flow (interest) to repay invested principal.
Higher coupon bonds will have shorter duration.
Bonds with longer duration will have greater market volatility.
Standard & Poor’s Bond Rating
Investment grades:
AAA
AA
A
BBB
Anything less is a “junk bond”
Moody’s Bond Rating
Aaa
Aa
A
Baa
Anything less is a “junk bond.”
Another name for “junk bond”?
High yield bond
Moody’s money market rating system:
MIG 1
MIG 2
MIG 3
MIG 4
SG = speculative/junk
Standard and Poors money market rating system?
SP1
SP2
SP3
Fitch money market rating system?
F 1
F 2
F 3
Fitch bond rating system?
Same as Standard & Poor’s
Special debt securities with higher risk and specific suitability requirements?
- Equity Linked Notes
- Exchange Traded Notes
- Alternative Investments (Alts)
- Structured Products
