Series65 MOD 14 Gvmnt Bonds

  1. Bill - Notes - Bonds
    • Bill -     1, 3 6 and 12 months
    • Notes - 2 - 10 yrs
    • Bonds - +10yrs
  2. Govmnt Bonds days are calculated
    in Actual days
  3. T-BILLS maturities
    • no more than 1yr and are currently sold as four-, 13-, or 26-week maturity instruments
    • Issued @ Par
  4. All Gvmnt Bonds are issued
    • $1000 increments
    • @ PAR value
  5. TREASURY NOTES maturities
    1 to 10 yrs
  6. TREASURY BONDS maturities
    10 to 30 years
  7. Which of the federally issued securities does not have a fixed rate of interest?
    • Treasury strips and T-Bills are sold at a discount and mature at par.
    • The appreciation is the "interest" on the strip.
    • At maturity there is no capital gain on a T-bill or a Treasury strip, only appreciation that is treated as interest.
    Issued by the federal government, but are actually issued by broker/dealers and backed by U.S. government securities.
  9. GNMA
    issued pass-through certificates (types of bonds) that represent a pool of mortgages, including mortgages from the VA and from the FHA
  10. for GNMA
    The investor receives monthly payments of interest and principal based on their ownership of the securities. Therefore, they are commonly known as MONTHLY PASS-THROUGHS.
  11. The U.S. government does not guarantee the following agencies’ debts:
    • FHA loans
    • Federal Home Loan Banks (FHLB)
    • FNMA issues bonds to finance VA, FHA and conventional loans
    • Federal home loan mortgage corporation or Freddie Mac
    • FEDERAL LAND BANKS issue farm loans
    • BANK FOR COOPERATIVES issues loans to farmers’ co-ops
    • FEDERAL INTERMEDIATE CREDIT banks issue short-term farm loans
  12. The government’s long-term marketable and nonmarketable debt is subject to
  13. Treasury Bills Quoted
    • on a Discount Basis
    • Bid price (sell) is always higher than Ask price (pay)
    • Quoted on a Discount Basis
  14. Treasury Notes/Bonds Quotes
    Dollar cost Percentage of Par (1/32)
  15. TREASURY BILLS are sold by
    the FOMC (the Federal Open Market Committee)
    are funds in excess of the Fed’s reserve requirement for the member banks of the Federal Reserve System.− Federal funds are very short-term, very safe, and never actually change hands
    • high grade debt securities issued in the debt market by broker/dealers.
    • GNMA, FNMA, FHA. Usually 10, 20, 30yr home loans
  18. CMOs are issued in TRANCHES
    • Like the underlying security, tranches pay interest on either a monthly, quarterly, or
    • semiannual basis.
  19. When a buyer of a Gvmnt Bond purchases, he must also pay
    Accrued interest to Seller. Calculated daily from last Interest pymnt date to settlement date
  20. Treasury Inflation Protected Securities (TIPS)
    • T - Notes that Adjust Principal Annually for Inflation
    • Coupon RATE Always Remains the Same
    • Principal Adjusted Semi-Annually
    • Interest PAYMENTS Indexed to CPI
  21. Separate Trading of Registered Interest & Principal of Securities (STRIPS)
    • NOT Issued by the Government
    • Actual Notes & Bonds with Interest & Principal Separated
    • Zero-Coupon Securities
    • Purchased at a Deep Discount
    • Receive "Interest" at Maturity
  22. Taxation of STRIPS
    • Only on Federal Level
    • Appreciation Must be Accreted Each Year
    • Accreted Value is Added to Taxable Income
    • Taxed Each Year as Income
    • No Capital Gain at Maturity
  23. GNMA Certificates are:
    • Backed by Pools of Mortgages (FHA & VA
    • Minimum Denomination & Increments of $25,000
    • Monthly Payments Consist of Interest & PrincipalGuaranteed by US Government
    • 50 Basis Point Guarantee & Servicing Fee
    • Subject to Prepayment Risk
    • Taxed at Fed and State levels
  24. Fannie Mae
    • Gov Sponsored Enterprise created in 1938
    • Issues Equities, Bonds & MBS
    • Mortgage Pools Consist of:
    • FHA, VA, Conventional
    • NOT Guaranteed by US Government
  25. What are Collateralized Mortgage Obligations (CMOs)
    Pooled GNMA, FNMA, FHLMC and Loans of the FHL Banks offered by Investment Banks
  26. Plain Vanilla CMOs
    • Prepayment Risk can Shorten Average Maturity
    • Extension Risk can Lengthen Average Maturity
  27. Define Companion Tranches
    • Companion Tranches Absorb Volatility of Principal
    • Create Planned/Targeted Amortization Classes
    • PACS or TACS
  28. Define PACs and TACs
    Planned Amortization Class, Targeted Amortization Class. Both have companion securities acting as buffers against excessive prepayment of principal
  29. What is a drawback of the Plain Vanilla CMO
    Investor is concerned with possible early calls or having the principal pmnts amounts extended
  30. Difference between PACs and TACs
    PACs have a main Tranche and 2 companion securities. Greater certainty of being paid at the end of the Tranche period

    TACs have a main Tranche and 1 companion security. greater extension risk but has protection against early calls.
  31. CMOs Tranches come in the following 4 main classes
    • A, B, C or Z
    • Issued in $1,000 increments
    • As interest rates increase, prepayments decrease
Card Set
Series65 MOD 14 Gvmnt Bonds
Govmnt Bonds