Fixed-Income

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Commercial paper

Back 1

Unsecured short-term promissory note, with the following characteristics:
-denominations of $100,000 or more
-maturities of up to 270 days
-large institutional investors
-terms are non-negotiable
-issuer may prepay the note

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Banker's acceptance

Back 2

Used to finance foreign trade:
-a buyer of goods will issue a written promise to to pay a given sum within a specified time period
-a bank then "accepts" this promise, obligating itself to make payment, obtaining the goods as collateral
-the written promise then becomes a liability of both the buyer and the bank

Front 3

Eurodollar CDs

Back 3

Large short-term CDs denominated in US dollars issued by foreign banks
-they are negotiable

Front 4

Eurodollar deposits

Back 4

US dollar denominated time deposits with foreign banks
-non-negotiable

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Repurchase agreement (Repo)

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One investor sells a money market instrument to another and agrees to repurchase it on a specified date at a specified price
-essentially a collateralized loan with the mm instrument serving as collateral

Front 6

Treasury bill

Back 6

Maturity of less than one year. Sold at discount (zero coupon).

Front 7

Treasury note

Back 7

Maturity of 1-10 years

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Treasury bond

Back 8

Maturity of 10-30 years

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Series EE Bond

Back 9

-A type of US savings bond.
-No secondary market.
-Variable interest rate set each May and November.
-Interest rate not taxable until maturity (only federal, no state or local)

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Series HH Bond

Back 10

-A type of US savings bond
-acquired through an exchange of Series E or EE bonds held 6 months or longer
-not marketable
-pay a fixed rate of interest determined on date of purchase
-interest subject to federal but not state or local taxes

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Series I Bond

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-Interest rate set every May and November
-Interest rate is a fixed rate plus an additional amount determined by CPI
-maturity is 20 years with a chance to extend for 10 years
-exempt from state and local income tax

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Treasury Inflation-Protection Securities (TIPS)

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Face value fluctuates with CPI, but never below par.
-Yield remains constant, so the coupon payment fluctuates with face value.
-The coupon rate of a TIPS should be the rate of an equivalent-maturity T-Bond less the inflation rate.

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Federally sponsored agency bonds

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Federally sponsored agencies are private agencies that issue bonds and use the proceeds to make loans. These bonds are not explicitly guaranteed by the federal gov't but federal assistance if needed is implied.

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Federal National Mortgage Agency

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Fannie Mae. Purchases and sells real estate mortgages by FHA, VA and conventional mortgages.

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Federal Home Loan Mortgage Agency

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Freddie Mac. Purchases and sells conventional mortgages.

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Government National Mortgage Association

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Ginnie Mae. Mortgage pass-through securities fully backed by the federal gov't.

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Mortgage pass-through securities

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Represents a claim against a pool of mortgages.
-monthly cash flow is a combination of principal and interest
-ginnie maes are fully backed by federal gov't
-fannie maes and freddie macs are not fully backed by federal gov't

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Collateralized mortgage obligation (CMO)

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Allocates a mortgage pool's principal and interest payments among investors based on their aversion to prepayment risk.
-a traditional mortgage pool is turned into a set of securities called "CMO trenches"
-earlier trenches receive more principal (less risk)

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Stripped mortgage-backed securities

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Split between principal-only and interest-only strips

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Principal-only mortgage-backed securities

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Payments start small and increase over time.
-sold at a discount to par
-prepayment risk works in your favor (i.e. faster payments are better)

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Interest-only mortgage-backed securities

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Payments start out large and decrease over time
-Prepayment risk is very high
-Even a complete payment could result in a loss if it's done too early.

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Mortgage bonds

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Debt secured by the pledge of specific property.
-in the event of default, bondholders have a claim on the pledged property and may sell it to settle the claim
-bondholders also have an unsecured claim on the corporation itself

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Collateral trust bonds

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Bonds are secured by securities held by a trustee.
-common when the corporation uses securities of a subsidiary as collateral

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Equipment obligations

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Backed by specific pieces of equipment
-Most popular method is the "philadelphia plan" in which a trustee takes control of the equipment, issues the bonds, and leases it to the corporation.
-corporation makes payments to the trustee who uses those proceeds to make bond payments
-if all payments are made on time, the lessee eventually takes control of the equipment

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Debentures

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General obligations of the corporation. Unsecured.

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Subordinated debentures

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If multiple debentures are issued, a hierarchy may be imposed.

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Asset-backed securities

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Similar to mortgage pass-through securities. They represent pools of credit card revolving loans, auto loans, student loans, equipment loans.