US Government Debt

Question 1

Treasury Bonds: maturity and denominations

Answer 1

Maturity always 30 years; min denomination $100

Question 2

STRIPS

Answer 2

Zero-coupon treasury bonds; No reinvestment risk

Question 3

Treasury Receipt

Answer 3

“unofficial STRIP”, made by brokers

Question 4

TIPS

Answer 4

Treasury Inflation Protection Securities; interest rate adjusts over life of bond

Question 5

Treasury Notes

Answer 5

Maturities range from 1 to 10 years; min denomination of $100; Pay interest

Question 6

Treasury Bills

Answer 6

Short-term, issued in 1, 3, 6, and 12 month maturities; zero-coupon

Question 7

Cash Management Bill (CMB)

Answer 7

Very short term security; range from 5 day to 6 month; used as needed when Treasury is low on cash

Question 8

MBS

Answer 8

Mortgage Backed Securities

Question 9

FHLB

Answer 9

Federal Home Loan Bank

Question 10

What different loans can the 3 mortgage associations buy?

Answer 10

Fannie Mae: Government & conventional
Ginnie Mae: Government only
Freddie Mac: Conventional only

Question 11

CMO

Answer 11

Collateralized Mortgage Obligation - separate different slices of mortgage pool into tranches to offer different maturities and risks

Question 12

PSA

Answer 12

Prepayment speed assumption - how long it is assumed to take to pay off a mortgage

Question 13

PAC

Answer 13

Planned Amortization Class - CMO tranche with two companion classes to absorb prepayment and extension risk

Question 14

TAC

Answer 14

Targeted Amortization Class - CMO tranche that is only protected from prepayment risk

Question 15

CDO

Answer 15

Collateralized Debt Obligation - assembled from tranches basedon risk; implicated in stock market crash

Question 16

How are CMO’s quoted?

Answer 16

quoted in 32nds; quoted on a “yield spread basis” which is quoting an equivalent Treasury security plus a spread

Question 17

When do government securities settle?

Answer 17

Next business day after trade

Question 18

What currency do government securities settle in?

Answer 18

Fed Funds

Question 19

Fed Funds

Answer 19

funds good at any Federal Reserve Branch member

Question 20

How is interest accrued for government securities?

Answer 20

Bonds and Notes: Actual day month/actual day year

Agency issue: 30 day month/360 year

Question 21

Tax status of government securities

Answer 21

Government and agency issues: Federal tax, exempt from state

Privatized i.e. mortgage issues: Federal and state taxes

Question 22

GNMA Pass Through Certificates: Quoted on % of par or yield basis?

Answer 22

% of par

Question 23

Private CMO Credit Rating

Answer 23

Based on structure, issuer, and collateral