15.62 - Fixed - Overview Of Bond Sectors & Instruments

Front 1

15.62A - Soverign Debt refers to...

Back 1

The debt obligations of governments

Front 2

15.62A - US Treasury securities are...

Back 2

soveriegn debt of the US government and are considered free of credit risk. Sovereign debt of other countries has varying degrees of credit risk.

Front 3

15.62A - Sovereign debt is typically issued using one of four methods...

Back 3

1. Regular auction cycle with the entire issue sold at a single price

2. regular auction cycle with bonds issued at multiple prices

3. ad hoc auction system with no regular cycle

4. tap system, auctioning new bonds identical to previously issue bonds

Front 4

15.62B - Securites issued by US gvrnment include:

Bills (what kind of security? maturity?)
Notes (maturity?)
Bonds (maturity?)

Back 4

Bills - pure discount securities maturing in four weeks, three month, six months. Short-term

Notes - coupon securities maturing in 2, 5, or 10 years

Bonds - coupon securities maturing in 20 or 30 years

Front 5

15.62B - Treasury Inflaiton Protected Securities (TIPS) are...

Back 5

US Treasury issues in which the coupon rare is fixed but the par value is adjusted periodically for inflation, based on change in CPI.

Front 6

15.62B - Treasury securties from most recent auction are referred to as ?

From previous auctions?

Back 6

- On-The-Run

-From prev. auctions: off-the-run

Front 7

15.62C - Stripped Treasury securities are created by....

Back 7

Are created by bond dealers who buy treasury securities, separate each of their shedulued coupon and principal payments, and resell those as zero-coupon securities

Front 8

15.62C - Treasury strips are traded in two forms

Back 8

coupon strips / principal strips, and are taxed by IRS on the basis of accrued interest, like other zero-coupon securities.

Front 9

15.62D - Agencies of the US government, including federally related institutions and government sponsored enterprises, issue bonds that are no obligations of the US treasury but are ....

Back 9

considered to be almost default risk free

Front 10

15.62E - A mortgage passthorugh secuirty is

What is a significant risk for investors?

Back 10

backed by a pool of amortizing mortgage loans (the collateral) and has monthly CF's that include interest payments, scheduled principal payments, and prepayments of principal

- Prepayment risk

Front 11

15.62E - CMO's are customized claims to...

15.62F - CMO's are created to...

Back 11

The principal and/or interest payments of mortagage passthrough securities and redistribute the prepayment risk/maturity risk of the securities

-To decrease borrowing costs by redistributing prepayment risk or altering maturity structure to beetter suit investor preferences

Front 12

15.62g - Interest payments on state/local gvrnmnet securites (munis) are usually exempt from...

Back 12

US Federal Taxes, and from state taxes in the state of issuance

Front 13

15.62G - Muncipal bonds include:

Back 13

-Tax-backed (general obligation) bonds backed by the taxing authority of the governmental unit issuing the securities.

- Revenue bonds, backed only by the revenues from the project specifically financed by the bond issue

Front 14

15.62H - Corporate debt securities include

Back 14

Bonds/medium-term notes/commercial paper

Front 15

15.62H - Bond rating agencies rate corp. bonds on...

Back 15

1. Capacity to repay (liquid assets and CF)

2. Management quality

3. Industry prospects

4. Corporate strategy

5. Financial policies

6. Credit history

7. Overall Debt levels

8. Collateral for the issues

9. Nature of the covenants

Front 16

15.62H - Corporate bonds may be _________ or _______

Secuirty can be in the form of ________, __________, or ________

Back 16

1. secured / unsecured (called debentures)

2. Real property, financial assets, or personal property/equipment

Front 17

15.62H - Medium-term notes (MTN) are issued periodically...

Back 17

By corporations under a shelf registration, sold by agents on a best-efforts basis, and have maturities ranging from 9 months to over 30 years.

Front 18

15.62H - Structured Notes combine...

Back 18

A bond with a derivative to create a security that fills a need for particulatr insitiutional investors.

Front 19

15.62H - Commercial paper is a

CP comes in what 2 forms?

Back 19

Short-term corporate financing vehicle and does not require registration with the SEC, if its maturity is less 270 days.

1. Directly-placed paper sold directly by the issuer
2. Dealer-placed paper sold to investors thorugh agents/brokers.

Front 20

15.62H - Negotiable CD's are issued in

- trade in ?

-Backed by?

-Are termed Eurodollar CD's when?

Back 20

A wide range of maturities by banks

- A secondary market backed by bank assets

- When denominated in US Dollars and issued outside the US

Front 21

15.65H - Bankers acceptances are...

Back 21

Issued by banks to guarantee a future payment for goods shipped, sold at a discount to the future payment they promise, short-term, and have limited liquidty

Front 22

15.62I - Asset -back securities (ABS) are...

Back 22

Debt that is supported by the CF's from an underlying pool of mortgages, auto loans, credit card receivables, commercial loans, or other financial assets

Front 23

15.62 I - A special purpose vehicle is an...

Back 23

Entitiy to which assets that an ABS are legally transferred. If the corporation transferring these assets goes bankrupt, the assets are not subject to claims from its creditors. As a result, the ABS can receive a higher credit rating than the corporation and reduce the corporation's funding costs.

Front 24

15.62 I - External credit enhancement for an ABS can include

Back 24

1. Corporate guarantees
2. Letters of credit
3. 3rd-Part Bond Insurance

Front 25

15.62 J - Collaterized debt obligiations (CDO's) are backed by..

Back 25

Are backed by an underlying pool of debt securities which may be any one of a number of types: corporate bonds/loans/emerging markets debt/Mortgage-backed securites, or other CDO's

Front 26

15.62K - The primary market is bonds includes

The secondary market includes...

Back 26

Underwritten/Best-efforts public offerings, as well as private placements

- Includes some trading on exchanges, a much larger volume of trading in a dealer market, and electronic networks which are an increasingly important part of the secondary markert for bonds.