U.S.Government Debt Flashcards
Features of a treasury bonds
Traded in 32nds and have a minimum maturity of 10 years
They are quoted on a percentage of par basis and are ONLY issued in book entry form
How are treasury bills issued?
Book entry form ONLY, no physical certs
What are CMB’s
Cash Management Bills:
Sold at a regular auction as needed (not weekly) to smooth out cash flow. They are the shortest term US gov’t security with maturities as short as 5 days, sold in $100 minimums at a discount to par.
Sold at a slightly higher yields than T-bills because they are issued irregularly.
The Federal Reserve Board is:
not a primary purchaser of Treasury securities, does NOT bid at the weekly auction but DOES trade them in the secondary market to influence credit availability
How are T-notes sold?
At a competitive bidding auction conducted by the federal reserve and are issued in book entry form (no physical securities)
Trading of Government and Agency bonds
Trading is performed by primary and secondary dealers, performed by the federal reserve, and the trading market is active
How long for T-bills to mature?
they are issued with maturities up to 52 weeks and pay interest at maturity.
How long for Treasury Receipts to mature?
30 year T-receiptes will trade until they mature, but are no longer issued. Also pay interest at maturity
Appropriate purchasers of Treasury STRIPS?
Pension funds and retirement accounts
NOT suitable for individual investors or investors seeking high income and a high level of security (low risk).
How are payments made to GNMA holders?
Monthly payments that represent a payment of both interest and principal; received from pooled mortgages to certificate holders.
Treasury Inflation Protection Security -TIPS
The nominal interest rate or stated rate is LESS than that of a Treasury bond because every year the principal amount is adjusted upwards to account for that year’s inflation rate. Though the interest rate is fixed, the holder receives a higher interest payment due to the increased principal amount. At maturity the holder receives the higher principal amount, thus there is no purchasing power risk.
FNMA
Privatized Agency that is publicly traded. It’s shares trade in the OTC market, NOT backed by US gov’t
