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Overview of Bonds

Reading 55

What bond market encompasses all debt issues traded in a particular country (including local and foreign bond markets)? Internal bond market.
What is another name for the external market? Eurobond market.
What are the features of the external market? 1. International syndicates underwrite the bonds. 2. New issues are offered to investors of many countries. 3. They fall outside the jurisdiction of any country. 4. They are unregistered securities.
Sovereign bonds are most likely to be denominated in... In the local OR foreign currency.
Why do rating agencies assign two types of ratings to the debt of a sovereign entity? The way the government deals with local and foreign denominated defaults are different. Local by raising taxes. Foreign by buying foreign currency.
All winning bidders are awarded securities at the highest yield is what kind of auction? Single-price auction.
All winning bidders are awarded securities at the yield they bid is what kind of auction? Multiple price auction.
What is historically higher in default rate in sovereign bonds? Local or foreign? Foreign.
What is the most recently auctioned Treasury issue for a maturity? On the run issue.
Treasury notes and bonds are quote by percent and ___ of one percent? 32.
What is the auction method that distributes new securities when it feels that the market conditions are favorable? Ad-hoc method.
The government auctions additional bonds of a previously outstanding bond issue. Tap method.
How long are the terms for Treasury Notes? One to ten years.
How long are the terms for Treasury Bills? One year or less.
How long are the terms for a Treasury bond? Ten or more.
What are the features of TIPS? 1. Semiannual coupon rate is fixed at issuance. 2. The par value adjusts semiannually for inflation as measured by the CPIU.
What is the adjustment formula for a TIPS coupon? Inflation adjusted par value x (Stated coupon rate/2)
If the adjust par value for TIPS is lower than the initial par value (due to deflation) investors receive what? Initial par value.
If the adjusted par value is greater than the inital par value (due to inflation) investors receive what? Adjusted par value.
What do GSEs debentures and discounts notes do NOT have? Any collateral backing.
The ability of the issuing GSE to service its debt depends on.. Its cash flow generating ability.
Mortgage passthrough securities offer ___ as they pool default risk. Diversification.
When interest rates fall, mortgage prepayments tend to ____. Accelerate.
When prepayments of tend to accelerate, investment performances of principle only strips tends to __? Improve.
Tax exempt municipal bonds are exempt from? Federal income taxes.
Tax exempt municipal bonds are NOT exempt from? Capital gains taxes.
Interest on out of state tax-exempt bonds are full taxable at a... State level in the United States.
Debt obligations are backed by the full faith, credit and taxing power of the issuing authority. Taxed-back debt.
General obligation debt: 1. Unlimited tax. 2. Limited tax. 3. Double barreled.
Issued to finance a specific project and are serviced by the revenue generated from project (if at all). Revenue bonds.
Fully collateralized by the U.S. Treasuries that the issuer has already purchased and placed in an escrow account. Little credit risk. Prerefunded bonds.
The four C's of credit analysis. 1. Character. 2. Capacity. 3. Collateral. 4. Covenants.
Three forms of collateral that back a secured debt. 1. Personal property. 2. Real property. 3. Financial assets.
Unsecured bonds. Debentures.
Third party guarantees that the obligation of a loan will be fulfilled. Does NOT serve as collateral for a borrowing. Credit enhancements.
Types of different credit enhancements. 1. Third party guarantees. 2. Letters of credit. 3. Bond insurance.
A variation of a floatig-rate note that has some type of unufual characteristic. Structured note.
Types of structures notes. 1. Step-up notes. 2. Inverse floaters. 3. Dual indexed floaters. 4. Ranged notes. 5. Index amortizing notes.
Created by: AnalyticalArtist