Reading 55
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| What bond market encompasses all debt issues traded in a particular country (including local and foreign bond markets)? | Internal bond market.
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| What is another name for the external market? | Eurobond market.
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| 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.
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| Sovereign bonds are most likely to be denominated in... | In the local OR foreign currency.
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| 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.
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| All winning bidders are awarded securities at the highest yield is what kind of auction? | Single-price auction.
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| All winning bidders are awarded securities at the yield they bid is what kind of auction? | Multiple price auction.
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| What is historically higher in default rate in sovereign bonds? Local or foreign? | Foreign.
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| What is the most recently auctioned Treasury issue for a maturity? | On the run issue.
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| Treasury notes and bonds are quote by percent and ___ of one percent? | 32.
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| What is the auction method that distributes new securities when it feels that the market conditions are favorable? | Ad-hoc method.
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| The government auctions additional bonds of a previously outstanding bond issue. | Tap method.
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| How long are the terms for Treasury Notes? | One to ten years.
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| How long are the terms for Treasury Bills? | One year or less.
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| How long are the terms for a Treasury bond? | Ten or more.
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| 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.
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| What is the adjustment formula for a TIPS coupon? | Inflation adjusted par value x (Stated coupon rate/2)
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| If the adjust par value for TIPS is lower than the initial par value (due to deflation) investors receive what? | Initial par value.
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| If the adjusted par value is greater than the inital par value (due to inflation) investors receive what? | Adjusted par value.
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| What do GSEs debentures and discounts notes do NOT have? | Any collateral backing.
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| The ability of the issuing GSE to service its debt depends on.. | Its cash flow generating ability.
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| Mortgage passthrough securities offer ___ as they pool default risk. | Diversification.
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| When interest rates fall, mortgage prepayments tend to ____. | Accelerate.
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| When prepayments of tend to accelerate, investment performances of principle only strips tends to __? | Improve.
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| Tax exempt municipal bonds are exempt from? | Federal income taxes.
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| Tax exempt municipal bonds are NOT exempt from? | Capital gains taxes.
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| Interest on out of state tax-exempt bonds are full taxable at a... | State level in the United States.
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| Debt obligations are backed by the full faith, credit and taxing power of the issuing authority. | Taxed-back debt.
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| General obligation debt: | 1. Unlimited tax.
2. Limited tax.
3. Double barreled.
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| Issued to finance a specific project and are serviced by the revenue generated from project (if at all). | Revenue bonds.
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| Fully collateralized by the U.S. Treasuries that the issuer has already purchased and placed in an escrow account. Little credit risk. | Prerefunded bonds.
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| The four C's of credit analysis. | 1. Character.
2. Capacity.
3. Collateral.
4. Covenants.
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| Three forms of collateral that back a secured debt. | 1. Personal property.
2. Real property.
3. Financial assets.
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| Unsecured bonds. | Debentures.
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| Third party guarantees that the obligation of a loan will be fulfilled. Does NOT serve as collateral for a borrowing. | Credit enhancements.
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| Types of different credit enhancements. | 1. Third party guarantees.
2. Letters of credit.
3. Bond insurance.
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| A variation of a floatig-rate note that has some type of unufual characteristic. | Structured note.
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| Types of structures notes. | 1. Step-up notes.
2. Inverse floaters.
3. Dual indexed floaters.
4. Ranged notes.
5. Index amortizing notes.
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