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22 Cards in this Set

  • Front
  • Back
What factors make the US Treasury prominent?
1. volume
2. liquidity
Are Treasury Securities subject to state and local income taxes?
What is the difference between Treasury Notes and Treasury Bonds?
Treasury Notes- maturities between 2 and 10 yrs
Treasury Bonds- maturities greater than 10 yrs
What are Treasury inflation protection securities (TIPS)?
securities that adjust for inflation; principal is adjusted for inflation then coupon is taken as percentage of inflation adjusted principal; each adjustment is taxed; principal cannot fall below par value
What is the stop yield?
highest yield accepted by the treasury in a securities auction
What is the tail?
the difference between the average yield of all the bids accepted by the Treasury and the stop yield; the smaller the tail, the more successful the auction
What does off-the run mean?
initially issued before, not a recent bond
What is the when-issued market/wi market?
treasury securities are traded prior to the time they are issued by the Treasury
What is the difference between an overnight repo and a term repo?
government securities dealer purchases security and needs financing before it sells the security-
overnight repo- loan to dealer is for one day
term repo- loan for more than one day
What is a matched sale?
Fed sells securities draining money from the financial market
What is coupon stripping?
firm buys T-bond sells securities against each coupon payment + the maturity payment; each sold security is a zero coupon bond; Merrill Lynch- Treasury Income Growth Receipts (TIGRs)/Salomon Brothers- Certificates of Accrual on Treasury Securities (CATS)
What are trademark zero-coupon Treasury securities?
investment banks issue their own zero-coupon bond; rarely traded, not very liquid, risky cause bank may go bankrupt
What are Treasury receipts?
represent ownership of a strip (coupon payment or principal) of a Treasury security
What is the Separate Trading of Registered Interest and Principal of Securities program?
facilitates stripping of designated treasury securities
What is the difference between coupon strips and principal strips?
coupon strips- created from coupon payments
principal strips- created from the principal
What is a negative of coupon strips?
negative cash flow because interest is taxed eventhough interest is not paid
What is reconstitution?
process of purchasing stripped Treasury securities to create synthetic Treasury coupon securities
What are federally related institutions?
arms of federal government that generally do not issue securities directly in the market place
What are government-sponsored enterprises (GSEs)?
privately owned, publicly chartered entities; issue securities directly to farmers, homeowners and students
What are the two types of securities issued by GSEs?
debentures and mortgage/backed/asset-backed securities
What are debentures?
do not have any specific collateral backing the bond; ability to repay depends on the ability of the issuing GSE to generate sufficient cash flows to satisfy the obligation
What do you call bonds in the UK?