U.S. Government and Agency Debt Securities Flashcards
A competitive bid placed at a Treasury auction will indicate both ___________ and _________.
A competitive bid placed at a Treasury auction will indicate both quantity and price.
_______________ following the trade date is settlement for trades of U.S. Government securities or option contracts.
1 business day (T+1) following the trade date is settlement for trades of U.S. Government securities or option contracts
True or False: T-Bills are quoted on a dollar basis.
False. T-Bills are quoted on a discount yield basis.
Interest on Federal Farm Credit system and FHLB securities is subject to which taxes?
Federal only, and exempt from state and local
What is the maturity range of a T-Bond?
More than 10 years
Name two requirements that must be followed with CMO-related retail communication.
CMOs may not be compared to other investments (like CDs), and educational material must be offered
______ is the mortgage-backed agency that is fully backed by the U.S. Government.
GNMA is the mortgage-backed agency that is fully backed by the U.S. Government.
How is interest on Treasuries treated for tax purposes?
Exempt at the state and local level, but subject to federal tax
Is a CMO considered a derivative?
Yes
True or False: Agency-backed CMOs have high credit ratings.
True. They are usually highly rated because of the collateral backing them.
The principal value of TIPS may be adjusted based on changes to the __________________________.
The principal value of TIPS may be adjusted based on changes to the Consumer Price Index (CPI).
With CMOs, the term ____________ represents separate bond classes.
With CMOs, the term tranche represents separate bond classes.
Corporate and municipal bonds are quoted in 8ths, while T-Notes and T-Bonds are quoted in ______.
Corporate and municipal bonds are quoted in 8ths, while T-Notes and T-Bonds are quoted in 32nds.
What is the maturity range of a T-Note?
2 to 10 years
What price do non-competitive bidders agree to pay at a Treasury auction?
The lowest price (highest yield) of the accepted competitive bids
When must retail communication concerning CMOs be filed with FINRA?
Within 10 business days of first use
True or False: The settlement date for T-Bills purchased at the auction is the next business day.
False. Settlement at auction is the Thursday following the auction. Next business day is for secondary market trading.
What are T-STRIPS?
Any T-Note/T-Bond where a BD has stripped the interest and principal payments to sell separately as zero-coupons
Which security has no connection to CMOs - GNMA, FNMA, FHLMC or SLMA?
Student Loan Marketing Association (SLMA) - GNMA, FNMA, and FHLMC are associated.
At a Treasury auction, __________________ bids are awarded first.
At a Treasury auction, non-competitive bids are awarded first.
What system is used for the issuance of Treasury securities?
An auction
The tranche that is the last to receive cash flow is the ____________.
The tranche that is the last to receive cash flow is the Z tranche.
Which tranche has the most unpredictable cash flow and maturity?
The support or companion tranche
The following would be a quote for what security? Bid 4.26 Asked 4.22
T-Bill
T-Bills are issued in maturities of: ____ week, ____ week, ____ week, and ____ week
T-Bills are issued in maturities of: 4 week, 13 week, 26 week, and 52 week
What are TIPS?
Treasury Inflation-Protected Securities
The minimum face value of a T-Bill, T-Note or T-Bond is $______.
The minimum face value of a T-Bill, T-Note or T-Bond is $100.
What risk is primarily associated with mortgage-backed securities?
Prepayment risk
True or False: Interest paid on GNMA, FNMA, FHLMC, and SLMA agency bonds is fully taxable to investors.
True. The interest is taxed at the federal, state, and local level.
True or False: The interest rate on TIPS is fixed, but the principal may be adjusted.
True
How often do GNMA pass-throughs make payments?
GNMA pass-throughs make payments monthly.
What does ownership of a GNMA pass-through certificate represent?
An undivided interest in a pool of residential mortgages
Each payment from GNMA will represent both ____________ and ____________.
Each payment from GNMA will represent both principal and interest.
Interest paid on bonds issued by U.S. territories or possessions is ___________________.
Interest paid on bonds issued by U.S. territories or possessions is triple-tax-exempt.
Which tranche has the most predictable cash flow and maturity?
The PAC (Planned Amortization Class) tranche
What is a major advantage to investing in a bond issued by the Commonwealth of Puerto Rico?
Triple-tax-exempt interest
Since T-STRIPS are sold at a discount and mature at par, what must be done to their basis each year?
The discount must be accreted each year.
Though subject to federal tax, interest on Treasuries is exempt from ________ and ________ tax.
Though subject to federal tax, interest on Treasuries is exempt from state and local tax.
Gov Bond Interest Accrual
Actual Day Month / Actual year up to but not including settlement
