Series 7; Ch. 4

Front 1

Direct Obligations

Back 1

The Federal Gov't pays the interest & principal on debt.

1) Treasuries
2) Savings Bonds

Front 2

Treasuries

Back 2

1) T-Bills
2) T-Notes
3) T-Bonds
4) TIPS (Treasury Inflation Protection Securities)

Front 3

Savings Bonds

Back 3

1) Series EE
2) Series HH

Front 4

T-Bills

Back 4

Short-term zero coupon

Traded @ a discount from face (non-interest bearing sec)

Registration is in book entry form

Minimum denominations = $1000

Matures:
* 1 month (4 weeks)
* 3 month (13 weeks)
* 6 month (26 weeks)

Front 5

T-Notes & T-Bonds

Back 5

T-Notes mature in 1 to 10 years & are currently the LONGEST new issue maturity of U.S. Gov't Debt.

T-Bonds mature in over 10 to 30 years.

Both pay interest semi-annually

Front 6

TIPS (Treasury Inflation Protection Securities)

Back 6

* Fixed interest rate over the life of the security, but the principal is adjusted every 6 months in an amount of equal to the Consumer Price Index.

* Not subject to purchasing power risk

* Pay interest semi-annually

Front 7

Settlement

Back 7

* T-Bills, T-Notes & T-Bonds settle "regular way" on next business day (T + 1)

* "Skip day" = T + 2

* "Corporate" = T + 3

Front 8

Series EE Savings Bonds

Back 8

* Maturities up to 30 years

* Discount bonds issued @ 50% of face value in denominations of $50 up to $10,000

* Non-callable & non-negotiable

* Registered form only & non-transferable

Front 9

Series HH Savings Bonds

Back 9

* Pay interest semi-annually

* Come in $5000 to $10000 denominations

* Purchased by handing in EE bonds that are at least 6 months old, but not older than one year past maturity.

Front 10

Treasury STRIP = Separate Trading of Registered Interest & Principal of Securities

Back 10

* Issued by brokerage firms

* Firms buy large blocks of T-Bonds & T-Notes, then separate the interest from principal payments.

* Each interest & principal payment is then sold as a deep discount zero-coupon security

* Strips are NOT sold by the Gov't, AAA rated

Front 11

Treasury Receipts

Back 11

* Virtually obsolete due to the inception of T-STRIPS

* Brokerage firm buys a large basket T-Bonds or T-Bills & deposits them w/a trustee

* Bonds are stripped of their coupons & units are sold representing the repayment of principal @ maturity

Front 12

Directly BACKED by the US Gov't

Back 12

1) Export-Import Bank (EXIM Bank)

2) Government National Mortgage Association (GNMA) "Ginnie Mae"

Front 13

Export-Import Bank (EXIM Bank)

Back 13

* Provides funds to bolster trade between the US & other countries

* Allowed to borrow money from the US Treasury

* Interest is subject to federal, state & local taxes

Front 14

Gov't National Mortgage Association (GNMA) "Ginnie Mae"

Back 14

* Provides financiing for residential housing.

* Issues "pass through certificates" which are backed by pools of VA and/or FHA mortgages

* All mortgages in the pool must have the same maturity & interest

* Mortgages in pools have 25-30 year maturities

* Average life of mortgage pool is 12-14 years.

* Quoted in 32nds, but T + 3 settlements

* Interest is subject to federal, state & local taxes

Front 15

Federal Farm Credit Banks (FFCB)

Back 15

* 37 banks that extend credit to farmers.

Front 16

Federal Home Loan Banks (FHLB)

Back 16

* Provides funds to savings & loan institutions to meet seasonal demand.

* Treasury is allowed to buy $4 billion of these securities

Front 17

Student Loan Marketing Association (SLMA) "Sallie Mae"

Back 17

* Provides funding & liquidity to student loan makers.

* Buys insured & uninsured student loans

* Capitalized through a publicly traded common stock issue

Front 18

Federal National Mortgage Association (FNMA)"Fannie Mae"

Back 18

* Provides liquidity to mortgage providers by buying conventional residential mortgages which are insured or guaranteed by the FHA, VA, & Farmer's Home Association

* Have authority to borrow from the Treasury, but their issues are NOT backed by the Fed Gov't.

* Issue bonds w/min. denom. of $10,000

* Notes, Bonds & Stock trade on NYSE

Front 19

Federal Home Loan MOrtgage Corporation (FHLMC) "Freddie Mac"

Back 19

* Provides liquidity to federally insured savings institutions to finance new housing, particularly when credit is tight.

* Issue bonds backed by GNMA

* Pass through Certs backed by conventional mortgages.

* Issue "guaranteed mortgage cert", backed by guaranteed mortgages.

Front 20

Pass Through Certificates

Back 20

Security which is backed by a pool of mortgages, interest & principal payments on those mortgages are disbursed on a monthly basis to the certificate holders.

Front 21

Collaterized Mortgage Obligations (CMOs)

Back 21

* Limiting an investor's exposure to prepayment risk.

* Secured by FNMA, GNMA, & FHLMC

* AAA rated

* Interest is paid monthly