Chapter 5

Which of the following securities are generally used by importers and exporters to finance foreign trade? A. Banker's acceptances B. ADRs C. Eurodollar bonds D. Commercial paper

*A. Bankers' Acceptances* Bankers' acceptances are letters of credit that are issued by banks and often used to finance foreign trade. Eurodollar bonds are issued outside of the U.S., but denominated in U.S. dollars; however, they are not a means of financing foreign trade. Commercial paper is short-term corporate debt. ADRs are depository receipts for foreign equities.

The minimum denomination for negotiable certificates of deposit is:

$100,000 ypical denominations are often $1,000,000 or more

A corporation has raised money to use for expansion of its plant within the next six months. In which of the following securities should the corporation invest the funds until they are used? A. High-quality commercial paper B. Long-term municipal zero-coupon bonds C. U.S. Treasury bonds D. High-quality preferred stocks

*A. High-quality commercial paper* The corporation intends to use the money in a short period and does not want to assume undue investment risks. Of the choices given, the most suitable investment is high-quality commercial paper since it is extremely safe and can be purchased with a short maturity to match the corporation's needs.

A corporation that has filed for bankruptcy is to be liquidated. Which of the following securities issued by that corporation has seniority in the liquidation process? A. Mortgage bonds B. Debenture bonds C. Common stock D. Participating preferred stock

*A. Mortgage bonds* When a corporation is liquidated, its assets are sold and the proceeds are distributed. *Secured* creditors are paid first (i.e., mortgage bondholders), then unsecured creditors (debenture holders), then preferred stockholders, and last the common stockholders. This would make mortgage bonds the senior security of those listed.

A town has started the construction of public sewers. This project is likely paid by a(n): A. Special assessment bond B. Industrial development bond C. Moral obligation bond D. Equipment trust certificate

*A. Special assessment bond* Public sewers are often built with the proceeds of a special assessment bond. A special assessment is a charge against property that receives a benefit from the improvement. The ongoing cost of operating and maintaining the sewer system plus the payment of debt service on sewer bonds issued for this purpose, may be paid from property taxes or fees.

A quote of 5.90 - 5.75 is a quote for which of the following securities? A. Treasury bills B. Treasury notes C. Treasury bonds D. A mortgage-backed security

*A. Treasury bills* Treasury bills are quoted on a discount yield basis while the other choices are quoted at a price. Since yield is inversely related (moves opposite) to price, the higher yield (5.90) represents the lower price and is the bid. The lower yield (5.75) represents the higher price and is the ask (offer). The other securities are all quoted as a percentage of par in 32nds.

An investment that provides investors with a floating rate of interest, a stated maturity, and the ability to put the security back to an intermediary on a pre-determined basis is referred to as: A. A stock put option B. A variable rate demand obligation (VRDO) C. A perpetual puttable preferred stock D. A tax-deferred non-qualified, variable annuity

*B. A variable rate demand obligation (VRDO)* Variable rate demand obligations (VRDOs) provide a floating rate, a fixed maturity, and the ability to sell (i.e., put) the security back to a financial intermediary. VRDOs can be put back at any time that the interest rate is reset, which may be daily, weekly, or monthly.

Government-sponsored enterprise securities are comparable to direct government obligations with regard to all of the following statements, EXCEPT: A. They trade in the over-the-counter market B. All are government guaranteed C. Short-term securities are quoted on a discount yield D. Long-term securities are quoted as a percentage of par

*B. All are government guaranteed* Government-sponsored enterprise securities are not guaranteed by the government. The other statements are true.

A grant anticipation note is normally paid from: A. Proceeds from the issuance of long-term bonds B. Funds received from the federal government C. Revenues received at a future date D. Receipts of future property taxes

*B. Funds received from the federal government* A grant anticipation note (GAN) is normally paid from funding provided by the federal government. A bond anticipation note (BAN) is paid from proceeds from the issuance of long-term bonds. A revenue anticipation note (RAN) is paid from revenues to be received at a future date. A tax anticipation note (TAN) is normally paid from future tax receipts, such as property (ad valorem) taxes.

Of the choices listed, which one is Moody's lowest rating for a municipal note? A. MIG 1 B. MIG 3 C. Aaa D. D

*B. MIG 3* MIG stands for Moody's Investment Grade and refers to ratings given municipal notes. There are three MIG ratings, with the best rating being MIG 1 and the lowest rating being MIG 3. Aaa is Moody's best rating for bonds, and C is its lowest rating for bonds.

For an Industrial Development Bond (IDB), the primary source that backs the bond is: A. The issuing authority only B. The leasing corporation only C. The issuing authority and the leasing corporation D. The treasurer of the city or town of issuance

*B. The leasing corporation only* An IDB is issued by a municipality, but secured by a lease agreement with a corporation.

Which of the following statements about municipal revenue bonds is NOT TRUE? A. They are not subject to the debt limitations that apply to general obligation bonds B. The maturity of the bonds will equal the useful life of the facility being built C. They can be issued by states, political subdivisions, interstate authorities, and intrastate authorities D. The interest and principal payments are derived from the funds being generated by the facility

*B. The maturity of the bonds will equal the useful life of the facility being built* Municipal revenue bonds do not always have maturity schedules that equal the useful life of the facility being built. Instead, the facility's useful life should significantly exceed the maturity of the bonds. Municipal revenue bonds do not have the debt limitations that apply to general obligation bonds. A debt limitation is considered the statutory or constitutional maximum debt that an issuer may legally incur. Revenue bonds can be issued by states, political subdivisions (e.g., counties and townships), interstate authorities, and intrastate authorities. Municipal revenue bond interest and principal payments are derived from the funds being generated by the facility.

Which of the following securities is an example of a collateralized time draft? A. Commercial paper B. American Depositary Receipts C. Bankers' acceptances D. Eurodollars

*C. Bankers' acceptances* A BA (banker's acceptance) is used to facilitate foreign trade. It is a time draft that has been guaranteed (collateralized) by a bank.

An investor has purchased a Bristol County Public Power System revenue bond. Which of the following statements is TRUE concerning this investment? A. Earnings from the bond are exempt from federal, state, and local taxes B. Payment of principal and interest is ultimately the responsibility of Bristol County C. If the power system declares bankruptcy, the bonds will go into default D. The assets of the power system secure the bond

*C. If the power system declares bankruptcy, the bonds will go into default* Interest from a revenue bond (a type of municipal bond) is exempt from federal income tax. However, it is generally exempt from state and local taxes only if purchased by a resident of the state of issuance. In addition, a revenue bond is backed by a stream of income from a specific project or facility. Unlike a general obligation bond, it is not backed by a general promise by the issuer to repay the debt. In this example, only the revenue (not the assets) of the power system back the bonds. If the power system cannot produce enough revenue to pay the bond's interest and/or principal, there will be a default. Bristol County is not obligated to use any other funds to make payments on the bonds.

Which of the following recommendations will protect assets if there's an impending large market decline? A. Sell covered calls on all of the stocks in a portfolio B. Buy an S&P 500 ETF C. Move investments into cash and equivalents D. Invest in a managed large-cap growth fund

*C. Move investments into cash and equivalents* Moving money into cash and equivalents (i.e., money-market securities) will provide investors with the most protection. Selling covered calls will generate some income, but will not provide protection over the short-term.

Which of the following always trade at a discount? A. Treasury bonds B. Treasury notes C. Treasury bills D. TIPS

*C. Treasury bills* Although all debt securities may trade at a discount at some point, Treasury bills are issued and trade at discounts since they don't have interest coupons.

A Treasury bond is quoted 105.04 - 105.24. The purchase price that a customer would expect to pay would be: A. $1,051.25 B. $1,052.40 C. $1,054.00 D. $1,057.50

*D. $1,057.50* U.S. Treasury notes and bonds are quoted in 32nds of a point. When purchasing the bond, the customer would pay the offering price of 105.24. To convert 105.24 into a dollar price: Step 1: 105.24 is equal to 105 24/32 Step 2: convert 24/32 into a decimal, which is .75 Step 3: convert 105.75% into a dollar price (105.75% x $1,000 = 1.0575 x $1,000 = $1,057.50) The customer would pay $1,057.50.

A municipality borrowing for a short-term period to finance a capital project would issue: A. Commercial paper B. Tax anticipation notes C. Debentures D. Bond anticipation notes

*D. Bond anticipation notes* A municipality borrowing for a short-term period to finance a capital project would issue bond anticipation notes. Commercial paper is primarily issued by corporations and some municipalities to raise short-term funds for working capital, but not to finance capital projects. Tax anticipation notes are used to meet operational expenditures.

The U.S. government does NOT guarantee the payment of interest and principal for which of the following securities? A. GNMA (Ginnie Mae) securities B. Treasury notes C. Treasury Receipts D. FHLMC (Freddie Mac) securities

*D. FHLMC (Freddie Mac) securities* The U.S. government guarantees the payment of interest and principal on all Treasury securities as well as securities that are issued by the Government National Mortgage Association (GNMA or Ginnie Mae). Securities that are issued by the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), which is a government-sponsored enterprise (GSE), are not guaranteed or backed by the U.S. government.

Interest on Treasury Inflation Protected Securities (TIPS) is: A. Subject to federal and state income tax B. Exempt from federal and state income tax C. Subject to state income tax, but exempt from federal income tax D. Subject to federal income tax, but exempt from state income tax

*D. Subject to federal income tax, but exempt from state income tax* Interest on any U.S. Treasury security is subject to federal income tax, but exempt from state income tax. This is the opposite of the tax treatment on municipal (state) bond interest, which may be subject to state tax, but is exempt from federal tax.

Treasury bonds are: A. Exempt from both federal and state taxes B. Exempt from federal taxes, but subject to state taxes C. Subject to both federal and state taxes D. Subject to federal taxes, but exempt from state taxes

*D. Subject to federal taxes, but exempt from state taxes* Treasury bond interest is subject to federal taxes, but exempt from state taxes. Municipal bond interest is taxed in the opposite way; it's exempt at the federal level, but may be subject to state taxes. Corporate bond interest is fully taxable at both the federal and state levels.

All of the following statements are TRUE concerning both auction rate securities (ARSs) and variable-rate demand obligations (VRDOs), EXCEPT: A. Interest rates are set at specified intervals B. They are often issued by municipalities C. They are long-term securities with short-term trading features D. They have a put feature allowing the holder to redeem the security at par

*D. They have a put feature allowing the holder to redeem the security at par* Although they are both long-term securities with short-term trading features, only *VRDOs have a put feature* that permits the holder to sell the securities back to the issuer or third party. Auction rate securities (ARSs) do not have this feature and, if the auction fails, the investor may not have immediate access to her funds. In addition, ARSs use an auction process to reset the interest rate on the securities, whereas the interest rate on a VRDO is reset by the dealer at a rate that allows the securities to be sold at par value.

Federal Farm Credit Banks (FFCBs) and Federal Home Loan Banks (FHLBs)

*Federal Farm Credit Banks (FFCBs)* The Federal Farm Credit Banks provide funds for three separate entities—Banks for Cooperatives, Intermediate Credit Banks, and Federal Land Banks. These organizations make agricultural loans to farmers. Interest received on these obligations is subject to federal tax, but is exempt from state and local taxes. *Federal Home Loan Banks (FHLBs)* The 12 Federal Home Loan Banks help provide liquidity for the savings and loan institutions that may need extra funds to meet seasonal demands for money. As with FFCB debt, interest received on these securities is subject to federal tax, but is exempt from state and local taxes.

types of corporate bonds

*Secured bonds*: mortgage bonds, equipment trust certificates, collateral trust bonds, asset-backed securities (ABS) *Unsecured bonds:* high-yield (junk) bonds, guaranteed bonds *other types of corporate bonds*: income bonds, eurodollar bonds, yankee bonds, and eurobonds

types of money market securities

*commercial paper Bankers' acceptances Negotiable certificates of deposit Federal funds Money-market mutual funds Repurchase agreements (Repos)*

more on agency securities

*federal agencies* Since federal agencies are direct extensions of the U.S. government, the securities that they issue or guarantee are backed by the full faith and credit of the U.S. government. This category includes the Government National Mortgage Association (GNMA). *government sponsored enterprises* or *GSEs* are publicly chartered, but privately owned organizations. Congress allowed for their creation to provide low-cost loans for certain segments of the population. The enterprise issues securities through a selling group of dealers with the offering's proceeds provided to a bank (or other lender). The bank then lends the money to an individual who is seeking financing (e.g., homeowners or farmers). Although GSE securities are not backed by the U.S. government, they are considered to have minimal default risk. Examples of GSEs include: *Federal Farm Credit Banks (FFCBs)* *Federal Home Loan Banks (FHLBs)*

eurodollar bonds, yankee bonds, and eurobonds

A *Eurodollar* is a dollar-denominated deposit that's made outside of the United States. Eurodollar bonds pay their principal and interest in U.S. dollars, but are issued outside of the U.S. (primarily in Europe). The issuers of Eurodollar bonds include foreign corporations, foreign governments, and international agencies, such as the World Bank. Another common type of bond that's denominated in U.S. dollars is a *Yankee bond.* Yankee bonds allow foreign entities to borrow money in the U.S. marketplace. These bonds are registered with the SEC and sold primarily in the U.S. A *Eurobond* is sold in one country, but denominated in the currency of another. The issuer, currency, and primary market may all be different. For example, a Russian manufacturer could sell bonds that are denominated in Swiss francs in London. This type of bond, which is referred to as a foreign pay bond, can be greatly affected by interest-rate movements in the country in which it's denominated.

authority to issue/ statutory or constitutional powers

A *statutory power* is a law that's passed by a state or local government which allows for the issuance of securities. The constitutional powers to issue general obligation bonds are derived from the state constitution. These statutory and constitutional powers may also limit the amount of debt that an issuer is able to incur. In other words, a GO bond issuer may be subject to a *debt ceiling.*

Tax and Revenue Anticipation Notes (TRANs)

A combination of the characteristics of both TANs and RANS. TRANs are created when TANs and RANs are issued together

guaranteed bonds

A guaranteed bond is one that, along with its primary form of collateral, is secured by a guarantee of another corporation. The other corporation promises that it will pay interest and principal if necessary. A typical example is a parent company that guarantees a bond that's issued by a subsidiary company.

role of the underwriter

A municipal underwriter plays an important role in the process of offering securities. The underwriter acts as a vital link between the issuer and the investing public by assisting the issuer in pricing the securities, structuring the financing, and preparing a disclosure document (referred to as the *official statement*).

feasibility study

A municipality must hire a consulting engineer to study the project and present a report to identify whether the project will be able to bring in the necessary revenues. This report examines the need for the proposed project and whether the project is a sound economic investment. An accounting firm is usually retained to help determine whether the revenues will be sufficient to cover expenses and debt service.

variable rate demand obligations VRDOs

Another long-term security that's marketed as a short-term investment is a variable rate demand obligation (VRDO). A VRDO's interest rate is adjusted at specified intervals (daily, weekly, monthly) and, in many cases, this adjustment allows the owner to sell or put the security back to the issuer or a third party on the date that a new rate is established. If this is done, the investor will receive the par value plus accrued interest. Investors who are interested in short-term investments may also purchase other tax-free money-market instruments such as tax-exempt commercial paper and tax-free money-market funds. Tax-exempt commercial paper has a maximum maturity of 270 days and is normally backed by a bank line of credit.

mortgage backed securities

As the name implies, mortgage-backed securities are debt instruments that are secured by pools of home mortgages. The agencies that issue these securities include the Government National Mortgage Association (GNMA or Ginnie Mae), the Federal National Mortgage Association (FNMA or Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac). The most common security issued by government agencies is a *mortgage-backed pass-through certificate.*

auction rate securities

Auction rate securities (ARSs) are long-term investments that have a short-term twist—the interest rates or dividends that they pay are reset at frequent intervals through auctions. Investors who purchase ARSs are typically seeking a cash-like investment that pays a higher yield than what's available from money-market mutual funds or certificates of deposit. Generally, there are two types of ARSs, *bonds with long-term maturities (20 to 30 years) and preferred shares with a cash dividend.* Both the interest rate on the bonds and the dividend on the preferred shares will vary based on rates that are set through *Dutch auctions* for a specified short period that's usually measured in days—7, 14, 28, or 35. Auction rate bonds are issued by entities such as corporations, municipalities, student loan authorities, and museums, while auction rate preferred shares are issued by closed-end funds (which are described in Chapter 7).

banker's acceptances (BAs)

Bankers' acceptances are instruments that are used to facilitate foreign trade. For example, let's assume that an American food company is importing French snails. The American company may wish to pay for the snails after delivery and, therefore, it issues a time draft (i.e., a check that's payable on a future date) which is secured by a letter of credit from a U.S. bank as payment. The French company exporting the snails is able to hold the draft until its due date and receive the full amount or may cash it immediately at a bank for a discounted amount. At that point, the bank has the draft guaranteed by the issuing bank and it becomes a banker's acceptance. BAs are actively traded and considered *quite safe* since they're secured both by the issuing bank and by the goods that were originally purchased by the importer.

negotiable certificates of deposit CDs

Banks and savings and loans issue certificates of deposit, which are time deposits that carry fixed rates of interest and mature after a specified period. Although most CDs mature in one year or less, they essentially have a *minimum maturity of seven days with no maximum maturity*. Holders of CDs are penalized if they redeem them prior to their stated maturity. Negotiable CDs have a minimum denomination of *$100,000, but often trade in denominations of $1,000,000 or more (also referred to as jumbo CDs).* There's an active secondary market in these securities. CDs of up to $250,000 are currently *insured* by the Federal Deposit Insurance Corporation (FDIC).

General Obligation Bonds (GOs)

Bonds issued by a municipality that are secured by the full faith and credit of the issuer A general obligation bond is secured by the full faith, credit, and taxing power of the issuer (if the issuers are states, the taxes are sales and income taxes, and the issuers are local governments they don't have extra sales tax and income tax but their taxes come from property taxes aka ad valorem tax, and also parking and licensing fees- minute 48) Therefore, *only issuers that have the ability to levy and collect taxes may issue GO bonds.* State or local governments are able to issue general obligation bonds based on their *statutory or constitutional powers.* However, prior to issuing general obligation bonds, issuers must obtain *voter approval.* Essentially, this voting requirement is due to the fact that taxpayer money is being used to pay debt service.

Construction Loan Notes (CLNs)

CLNs are issued by municipalities to provide funds for the construction of a project that will eventually be funded by a bond issue

Cash Management Bills CMBs

CMBs are unscheduled, short-term debt offerings that are used to smooth out Treasury cash flows. CMBs are issued at a discount, but will mature at their face amount. The duration of CMBs may be as short as one day.

collateral trust bonds

Collateral trust bonds are secured by third-party securities that are owned by the issuer. The securities (stocks and/or bonds of other issuers) are placed in *escrow*(?) as collateral for the bonds. Collateral: stocks and bonds

high yield junk bonds

Corporate bonds that are rated *below investment grade* (below BBB by S&P or below Baa by Moody's) are referred to as high-yield or junk bonds. The lower rating indicates that bond analysts are uncertain about the issuer's ability to make timely interest payments and to repay the principal. In other words, these bonds carry a *higher-than-normal credit risk* and typically pay higher coupons in order to compensate investors for the added degree of risk.

corporate bonds

Corporations that issue bonds use the proceeds from the offering for a variety of purposes—from building facilities and purchasing equipment to expanding their businesses. The advantage to issuing bonds over issuing stock is that the corporation is not giving up any control of the company or any portion of its profits. However, the disadvantage is that the corporation is required to repay the money that was borrowed plus interest. If a corporation has common and preferred stock outstanding and issues bonds, it's required to pay the interest on its outstanding bonds before it pays dividends to its stockholders. Also, if the company goes bankrupt, bondholders and other creditors must be satisfied before the stockholders can make a claim to any of the company's remaining assets. Although buying corporate bonds puts an investor's capital at less risk than purchasing stock of the same company, bonds typically don't offer the same potential for capital appreciation as common stocks.

the money market

Debt securities with maturities of more than one year are often referred to as *funded debt,* while short-term debt instruments with one year or less to maturity are referred to as *money-market securities.* There are a significant number of securities that trade in the money market with issuers, including the U.S. government, government agencies, banks, and corporations. There's also a diverse group of participants that utilize the money market, including the Federal Reserve Board, banks, securities dealers, and corporations. Money-market transactions provide an avenue for both acquiring money (borrowing) and investing (lending) excess funds for *short periods.* Typically, the investment period ranges from overnight to a few months, but may be as long as *one year.* Money-market instruments are a separate asset class and referred to as *cash equivalents.* Since cash equivalents are investments of high quality and safety, they're considered to be nearly the same as cash.

dormitory bonds

Dormitory bonds are issued to build housing for students at public universities and are repaid from a portion of students' tuition payments.

double barreled bonds

Double-barreled bonds are backed by a specific revenue source (other than property taxes) as well as the full faith and credit of an issuer with taxing authority (a GO issuer). essentially, debt service on the bonds will be paid by a combination of tax dollars and revenue dollars from the project being constructed

Grant Anticipation Notes (GANs)

GANs are issued in expectation of receiving funds (grants) from the federal government

health care revenue bonds

Health care bonds are used for the construction of non-profit hospitals and health care facilities.

housing revenue bonds

Housing bonds are issued by state or local housing finance agencies in an effort to help fund single family or multi-family housing and are normally for low or moderate income families. In some cases, the proceeds of the bond offering are lent to the real estate developers that are constructing the property.

Industrial Development Bonds (IDBs)

IDBs are a type of private activity bond that are issued by a municipality and secured by a lease agreement with a corporation. The purpose for the offering is to build a facility for a private company. The security's credit rating is based on the corporation's ability to make lease payments since the municipality doesn't back the bonds.

private activity bonds

If more than 10% of the bond's proceeds will be used to finance a project for use by a private entity (e.g., a corporation or professional sports team) and if more than 10% of the bond's proceeds will be secured by property used in the private entity's business, the bonds are referred to as private activity bonds. one important type of private activity bonds is *Industrial Development Bonds or IDBs*

repurchase agreements (Repos)

In a repurchase agreement (repo), a dealer sells securities (usually T-bills) to another dealer and agrees to repurchase them at both a specific time and price (a higher price). Essentially, the first dealer is borrowing money from the second dealer and securing the loan with securities (a collateralized loan). In return for making the loan, the second dealer (the lender) receives the difference between the purchase price and the resale price of the securities. If a dealer purchases securities and agrees to sell them back to the other dealer at a specific date and price, this is referred to as a *reverse repo or matched sale.* In this situation, the first dealer lends money (with securities as collateral) to the second dealer and earns the difference in sales prices. Many corporations, financial institutions, and dealers engage in repos and reverse repos. These types of transactions are typically short-term, with most being overnight transactions.

taxable municipal bonds

In certain cases, a municipality may not be able to issue bonds that are exempt from federal income tax. This may occur when the bonds are issued to finance projects that don't provide a significant benefit to the general public. Some examples of situations in which a bond may lose its tax exemption include: 1.) an offering in which the proceeds are being used to build a sports facility or certain types of housing, or 2.) an offering designed to allow an issuer to borrow funds in order to replenish its unfunded pension liabilities

Treasury STRIPS

In order to facilitate the stripping of securities, the Treasury created its *Separate Trading of Registered Interest and Principal Securities (STRIPS)* program. -Dealers are able to purchase T-notes and T-bonds and separately resell the coupon and principal payments as zero-coupons (discounted securities) after requesting this treatment through a federal reserve bank. -The difference between an investor's purchase price and the bond's face value is interest. -STRIPS are backed by the full faith and credit of the U.S. Treasury and are quoted on a yield basis, not as a percentage of their par value.

selecting an underwriter

In some cases, the issuer will simply appoint its underwriter by using a process that's referred to as a *negotiated sale.* Another method involves requesting that interested underwriters submit proposals through a bidding process that's referred to as a *competitive sale.*

stripped securities

In the 1980s, several broker-dealers began stripping the interest payments and final principal payments from Treasury notes and bonds and then repackaging and reselling them as zero-coupon bonds. Although these stripped securities were not issued by the Treasury, their cash flows were very secure since the underlying securities are direct obligations of the U.S. government. -So it's kind of like for example, a ten year treasury note would be paying interest semiannually (each 6 months) for ten years, so these firms and people were like 'we want to separate out each payment that this ten year treasury note is going to make and sell each individual payment as a separate security' even the principal after ten years. Creates a lot of different *zero-coupon instruments* out of one t-note or t-bond -Thereafter, a group of dealers began to issue generic stripped securities—referred to as *Treasury Receipts (TRs)*. -An important distinction is that Treasury Receipts are backed by Treasury securities that are owned by the issuing broker-dealer; they're not directly backed by the U.S. Treasury.

income bonds

Income bonds are normally issued by companies in *reorganization (bankruptcy).* The issuer promises to repay the principal amount at maturity, but does *NOT promise to pay interest* unless it has sufficient earnings. Since interest payments are not promised, income bonds *trade flat (without accrued interest),* sell at a deep discount (well below par), and are considered speculative investments.

lease rental bonds

Lease rental offerings involve one municipal entity leasing a facility from another. For example, a state building authority may issue bonds to build a college dormitory and then the authority will lease the dorm to the college. The bonds issued by the building authority will be paid from the revenues that are generated through lease payments received from the college.

the primary market for municipal bonds

Like U.S. government and government agency securities, municipal securities are exempt from the registration and prospectus requirements of the Securities Act of 1933. Although exempt, the underwriting process for municipal securities follows many of the same guidelines that are used for corporate underwritings. The Municipal Securities Rulemaking Board (MSRB)—the SRO for firms that deal in municipal securities— formulates the rules and regulations that relate to municipal underwritings.

long-term CDs

Long-term or *brokered CDs* generally have maturities that range from *two to 20 years* and are *not* considered to be money-market securities. These long-term CDs may have additional risks that are not associated with traditional bank-issued CDs, including: -Either limited or potentially no liquidity -The possibility of experiencing a loss of principal if the CD is sold prior to maturity -The potential existence of call features that limit capital appreciation and subject the investor to reinvestment risk -The possibility of no FDIC insurance

Asset-Backed Securities (ABS)

Many loans that are held by financial institutions (banks and finance companies) are not permanently held by the lender; instead, some are securitized and offered to investors. This securitization is done with credit card receivables, home equity, as well as automobile and student loans. In the process of securitizing the loans, the lender sells its receivables to a trust that creates a security which represents an interest in the trust and is backed by the subject receivables. In many cases, the investor receives a monthly payment that reflects both interest and principal amortization. The benefits of investing in these securities includes a *higher yield or return as compared U.S. Treasury securities*, high credit quality since they're secured, and a relatively predictable cash flow. Asset backed securities are subject to *interest-rate risk, credit risk, and prepayment risk* due to being backed by payments that are made to the lender.

ratings for municipal notes

Moody's and Standard and Poor's issue ratings for fixed-income securities. Both organizations also have a rating system that's specific to municipal notes. *Moody's* has four rating categories for municipal notes and variable rate demand obligations (VRDOs) - which are described below. The first three ratings are considered Moody's Investment Grade (MIG) ratings, with the fourth considered a speculative grade. VRDOs receive ratings based on a variation of the MIG scale—the Variable Municipal Investment Grade (VMIG) system. --MIG 1 (VMIG 1): Superior credit quality --MIG 2 (VMIG 2): Strong credit quality --MIG 3 (VMIG 3): Acceptable credit quality --SG: Speculative grade credit quality *standard and poor's has the following* four rating categories for municipal notes: --SP-1+: Very strong capacity to pay principal and interest --SP-1: Strong capacity to pay principal and interest --SP-2: Satisfactory capacity to pay principal and interest --SP-3: Speculative capacity to pay principal and interest

moral obligation bonds

Moral obligation bonds are first secured by the revenues of a project; however, if revenues are insufficient to pay debt service requirements, the state (or a state agency) is morally obligated (but not legally required) to provide the needed funds. Prior to issuing the bonds as moral obligation bonds, the *legislative approval* of the state government must be obtained.

mortgage bonds

Mortgage bonds are secured by a first or second mortgage on real property; therefore, bondholders are given a lien on the property as additional security for the loan. Collateral: real estate

municipal bonds

Municipal bonds are issued by states, territories and possessions of the United States, as well as other political subdivisions (e.g., counties, cities, or school districts). Public agencies (e.g., authorities and commissions) also have the authority to issue municipal bonds. Unlike U.S. Treasury securities, these debt instruments carry some level of *default risk* since municipal bonds are *not backed by the federal government.* For most investors, the primary advantage of municipal bonds is that the interest received is typically *exempt from federal tax.* Another advantage is that most states don't tax the interest from bonds that are issued within their state borders if they're purchased by their state residents. For this reason, investors tend to buy in-state bonds to avoid potential federal, state, and (in some cases) local taxes. *Territory bonds* (from guam, virgin islands, puerto rico) are backed by their territories and are *triple tax free*- free from federal, state, and local taxes

municipal notes (shorter term)

Municipal notes are *short-term issues that are normally issued to assist in financing a project or to assist a municipality in managing its cash flow*. Municipal notes are interest-bearing securities that ultimately pay interest at maturity. types we will focus on are: TANs, RANs, TRANs, BANs, GANs, CLNs

new issue underwritings

Once a municipal issuer has determined that there's a need for a bond issue and has followed the preliminary steps required to offer a bond (e.g., obtaining voter approval for a GO issue or completing a feasibility study for a revenue issue), it may continue the process of issuance. At this point, the municipality will typically seek the assistance of an underwriter (investment banker).

Revenue Anticipation Notes (RANs)

RANs are issued for the same purpose as TANs except that the anticipated revenues are typically from federal or state subsidies. RANs are also typically classified as general obligation securities.

competitive sale

Rather than selecting its underwriter, an issuer may invite interested underwriters to compete against one another by submitting bids for the issue. The syndicate that submits the best bid is awarded the bonds. Normally, the best bid is the one that presents the issuer with the lowest interest cost over the life of the issue.

types of revenue bonds

Revenue bonds are generally characterized by the project that the bond is financing or by the source(s) backing the bond Types to know are: *housing revenue bonds, dormitory bonds, health care revenue bonds, utility revenue bonds, transportation bonds, special tax bonds, special assessment bonds, moral obligation bonds, lease rental bonds, private activity bonds, industrial development bonds, taxable municipal bonds, and double-barreled bonds*

revenue bonds

Revenue bonds are issued for either projects or enterprise financings in which the issuer pledges to repay the bondholders using the revenues that are generated by the project or facility. Issuers of revenue bonds may be authorized political entities (e.g., state or local governments), an authority (e.g., the Port Authority of New York and New Jersey), or a commission that's created to issue bonds for purposes of building and operating a project. Revenue bonds can be used to finance airports, water and sewer systems, bridges, turnpikes, hospitals, and many other facilities. Concessions, tolls, and user fees that are associated with the use of these facilities are used to make interest and principal payments on the bonds. Revenue bonds are generally considered *riskier than GO bonds* since the generated revenues may prove to be unreliable or insufficient to fund debt service. They're *not backed by taxing power of a municipality but by the revenue produced from a specific project.* these are therefore considered *"self-supporting debt"* Another source of revenue originates from rental or lease payments. For example, a state may create a non-profit authority to issue revenue bonds in order to build a school. The local government that uses the school will lease the facility from the authority and the lease payments will be used by the issuer to pay interest and principal. Revenue bonds may be issued when voter approval for general obligation bonds *cannot* be obtained. Also, revenue bonds may be issued to finance capital projects when statutory or constitutional debt limitations prevent a municipality from issuing general obligation bonds. Revenue bonds will often have a *feasibility study* done to report on how much it will cost, what it will generate, etc.

issuing GO bonds

Since GO bond issues are backed by taxes, the following two requirements must be satisfied: *1. voter approval* The issuance of general obligation bonds usually requires voter approval since it's the funds that are generated by taxing citizens that are used to pay the debt service. For a general obligation bond, the indenture (written contract) will typically include the statutes which permit the issuer to levy taxes. *2. Debt Ceiling Limitations.* A GO issue is generally subject to debt limitations that are placed on the municipality by a voter referendum or by statutes. A municipality is not permitted to issue bonds in excess of its debt limitation since doing so would exceed its *debt ceiling.*

issuing revenue bonds

Since revenue bonds are backed by the user fees that are generated by a project or facility (and not by taxes), voter approval is *not* required. However, there are special procedures to be followed and requirements to be met prior to issuing revenue bonds. One of these procedures is conducting a *feasibility study.*

Bond Anticipation Notes (BANs)

Sold as interim financing that will eventually be converted to long-term funding through a sale of bonds.

special assessment bonds

Special assessment bonds are payable only from a specific charge on those who directly benefit from the facilities. Examples include bonds that are issued to develop or improve water and sewer systems, sidewalks, and streets.

special tax bonds

Special tax bonds are backed by special taxes (e.g., taxes on tobacco, gasoline, hotel/motel stay) for a specific project or purpose, but not by ad valorem (property) taxes. For example, highway bonds that are payable from an excise tax on gasoline are considered special tax bonds.

backing

State general obligation bonds are usually secured by income tax, sales tax, gasoline tax, excise tax, and other taxes that are collected at the state level. For local jurisdictions, such as counties and cities, the most common source of tax revenue is from levies on real property. School taxes are also assessed at the local level and are normally a significant portion of a person's real estate tax assessment. In addition, other non-tax revenue (e.g., parking fees, park and recreational expenses, and licensing fees) may be used to pay the debt service on GO bonds.

Three main types of marketable/negotiable securities

T-Bills, T-Notes, T-Bonds -From this point on, when the word Treasuries is used, it will refer to marketable/negotiable securities only

T-bill prices

T-bills are quoted on a *discounted yield basis,* not as a percentage of their par value. The yield represents the percentage discount from the face value of the security. An example of a T-bill quotation is: Bid-1.12 asked 1.11 ask yld 1.13 -Remember, due to the inverse relationship between price and yield, the higher the yield, the lower the price, and the lower the yield, the higher the price. Therefore, despite the fact that the bid (1.12 discount yield) is numerically higher than the asked (1.11 discount yield), the bid (higher yield) will represent a lower price. -Along with the bid and asked quotation, the column titled "asks yield" signifies the *bond* or *coupon equivalent yield.* The *bond equivalent yield* allows investors to compare the yields available on T-bills with the yields available on notes, bonds, and other interest-bearing securities. -The bond equivalent yield takes into account the fact that the interest being earned is on the amount invested, not on the face amount. As a result, a T-bill's bond equivalent yield is always greater than its discount yield. -Not quoted in 1/32s of points--they are quoted on a discount yield basis, not a dollar price. higher yield=lower price

Tax Anticipation Notes (TANs)

TANs are issued to finance current municipal operations in anticipation of future tax receipts from property taxes Also, TANs are typically classified as general obligation securities

Treasury Inflation-Protected Securities (TIPS)

TIPS are interest-bearing, marketable securities. One of the primary concerns for bond investors is inflation. Since a bond investor may often need to wait years for his principal to be returned, inflation (a rise in prevailing prices) will diminish the purchasing power of the returned funds, so they invest in TIPS -The *rate of interest on TIPS is fixed*; however, the *principal* amount on which that interest is paid may vary based on the change in the *Consumer Price Index (CPI).* The *interest rate is based on the adjusting principal, not just the par value like regular bond securities* During a period of inflation (a rise in CPI), the principal value will increase. However, if deflation occurs (from a decline in CPI), the principal value of the instrument will decrease (but not below $1,000). TIPS are issued in book-entry form in $100 increments and are available in 5-, 10-, and 30-year terms. The interest received on TIPS is taxed at the federal level, but exempt from state and local taxation. -ex. a $1,000 original principal value changes to $1030 bc of inflation, the 4% coupon is calculated on that 1030 not the 1,000 -Works the same when there is deflation- so this kind of security (TIPS) is best when inflation is increasing

Federal National Mortgage Association (FNMA)

The Federal National Mortgage Association, or *Fannie Mae,* raises money to buy insured Federal Housing Administration (FHA), Veterans Administration (VA), and conventional residential mortgages from lenders such as banks and savings and loan associations. Rather than being backed by the U.S. government, FNMA issues are backed by its authority to borrow from the U.S. Treasury. *Not technically backed by the govt.* Interest earned on FNMA securities is subject to federal, state, and local taxes (i.e., it's *fully taxable).*

US Treasury Securities Auctions-- The primary market

The government sells Treasuries through auctions that are conducted by the U.S. Treasury. These auctions vary in frequency depending on the securities being sold. This schedule is detailed in the chart on page 4 -settlements are on Thursdays. Trading treasuries in the secondary market, that settlement would be the next business day, but when you buy the new (t?)bill at the auction, it settles on the thursday of that week.

federal funds (Fed funds)

The monies borrowed overnight on a bank-to-bank basis are referred to as *fed funds*. This interbank borrowing is usually done to allow a bank to meet the reserve requirement which is set by the Federal Reserve. One bank with excess reserves may lend them to another bank that's in need of reserves. This allows the bank with excess reserves to earn interest on funds that would otherwise remain idle. The rate charged on these overnight loans is referred to as the *fed funds rate*. The rate fluctuates on a daily basis and is a leading indicator of interest-rate trends since it reflects the availability of funds in the system. Although the Federal Reserve doesn't set the fed funds rate, it will attempt to *influence* the rate through its purchases and sales of government securities in the secondary market. Other short-term interest rates tend to follow changes in the fed funds rate. A bank charges the *prime rate* when providing loans to corporations that are among the bank's best credit-rated customers. Other corporations may be charged a higher rate, but the rate will be based on the prime rate. The *London Interbank Offered Rate (LIBOR)* is the average rate that banks charge each other on loans for London deposits of Eurodollars.

pass-though certificates

The most common security issued by government agencies is a *mortgage-backed pass-through certificate.* The simplest method of creating a pass-through certificate is for an agency to purchase a pool of mortgages with similar interest rates and maturities. Interests in the pool are then sold to investors as pass- through certificates. Each certificate represents an undivided interest in the pool and the owners are entitled to share in the cash flow that's generated by the pooled mortgages. *Basically homeowners→ pay scheduled principal+ interest+ prepayment to → mortgage pool, which → distributes pro rata share of cash flow to → investors* On a monthly basis, the homeowners in the pool make their mortgage payments and, after certain administrative charges are deducted, the bulk of these payments are passed through to investors every month. Each payment includes a portion of both interest and principal.

types of muni bonds

There are primarily two types of municipal bonds—*general obligation bonds (GOs)* and *revenue bonds.* GO bonds may be issued to meet any and all needs of the issuer. In a sense, GO bonds are issued for general purposes. On the other hand, *revenue bonds* are typically issued to fund a specific project or facility, such as a bridge or toll road. For revenue bonds, the cash flows that are generated by the specific project (e.g., tolls, usage fees) are used to repay bondholders.

equipment trust certificates

These are bonds secured by a specific piece of equipment that's owned by the company and used in its business. The trustee holds legal title to the equipment until the bonds are paid off. These bonds are usually issued by transportation companies and backed by the company's rolling stock (i.e., assets that move), such as railroad cars, airplanes, and trucks. Collateral: equipment

agency securities

These are debt instruments issued and/or guaranteed by federal agencies and by *government sponsored enterprises (GSEs)* -They are exempt from state and federal registration the same way treasuries are- govt doesnt have to register with the SEC -Accrued interest based on 30 days in month, 360 days in year Similar to treasuries, they are generally issued in book entry form and are quoted as a percentage of par in 32's of points like 90 and 17/32% of par value Although agency securities are not direct obligations of the U.S. government, their credit risk is still considered low. Investors are attracted to agency securities due to their perceived safety and the fact that their yields are *slightly higher* than the yields of corresponding U.S. Treasury securities. -The overriding presumption is that since the federal government created these entities, it will not allow a default on their obligations. Therefore, most agency debt is highly rated and many agency offerings have AAA ratings.

Non Interest Bearing Securities

This isn't referred to as NIBS but imma call it that -*T-bonds, T-notes and TIPS are all interest-bearing instruments.* Non-interest-bearing Treasury securities are issued at a discount and mature at face value. so non interest bearing securities include: *treasury bills (T-Bills) and Stripped securities (which include Treasury STRIPS and Cash management Bills or CMBs)*

forming a municipal syndicate

Traditionally, *several broker-dealers will combine to form an underwriting syndicate* and one firm will act as the syndicate manager (lead underwriter). The syndicate is essentially a group of underwriters that share the liability and risk for selling the issue. Although the syndicate's composition may change, it's usually comprised of firms that have worked together in the past. Municipal issues are typically sold on a firm- commitment basis, which means that the selected/ winning syndicate is fully responsible for selling the entire offering.

transportation bonds

Transportation bonds are used to finance projects such as bridges, tunnels, toll roads, airports, and transit systems. user fees (e.g. tolls) are used to pay the debt service on these bonds

Treasury Bills (T-Bills)

Treasury bills are *non-interest-bearing, short-term securities that mature in one year or less.* -Currently, an investor may purchase T-bills with maturities of one month (4 weeks), three months (13 weeks), six months (26 weeks), and one year (52 weeks)- so only maturities up to one year. T-bills are issued in book-entry form only (no physical certificate, but it's just on record) and are sold in minimum denominations of $100 (and in multiples of $100 thereafter). -T-bills are always sold at a *discount* from their face value and, unlike Treasury bonds and notes, T-bills *don't make semiannual interest payments.* -The difference between a T-bill's purchase price and its face value at maturity represents the investor's interest. -Consequently, T-bills are referred to as *discount securities or non-interest-bearing securities.*

Treasury Notes (T-Notes) and Treasury bonds (T-Bonds)

Treasury bonds and Treasury notes are *interest-bearing* securities that have all the attributes of traditional fixed-income investments. Each *pays a fixed rate of interest semiannually* and the investors receive the *face value at maturity*. Treasury *notes* have initial maturities that range from *2 to 10* years, while Treasury *bonds* are issued with maturities of *more than 10* years. T-notes and T-bonds are both issued in book-entry (electronic) form and in minimum denominations of $100. However, please note that most examples in this study manual will use a par value of $1,000. The interest received on T-notes and T-bonds is taxed at the federal level, but exempt from state and local taxation. The main reason for purchasing Treasury securities is the safety that comes with a government-backed investment. When they are sold, they calculate accrued interest using actual days of month and a 365 day year They trade in 1/32s of a point

primary methods different issuers often use for underwriting process

US government securities: *Auction process* Municipal general obligation bonds: *competitive sale* Municipal revenue bonds: *negotiated sale* Corporate bonds: *negotiated sale*

Government National Mortgage Association (GNMA)

Unlike FHLMC and FNMA, the Government National Mortgage Association, or *Ginnie Mae*, is part of the Department of Housing and Urban Development. Since Ginnie Mae is a true government agency, it's *backed by the full faith and credit of the U.S. Treasury.* Ginnie Mae's purpose is to provide financing for residential housing. Although Ginnie Mae securities are direct obligations of the U.S. government, any interest earned on the securities is subject to federal, state, and local taxes. GNMA issues mortgage-backed securities and participation certificates, but its most popular securities are *modified pass-through certificates.* A modified pass-through certificate is *backed by a pool of FHA and/or VA residential mortgages.* As the homeowners in the pool make their mortgage payments (consisting of principal and interest), a portion of those payments is passed through to the investors who purchased the certificates from GNMA. GNMA guarantees monthly payments to the owners of the certificates, even if it has not been collected from the homeowners. The mortgages in the pool have maturities that range from *25 to 30 years*. However, due to prepayments, foreclosures, and refinancings, the average life of the pool tends to be much *shorter* especially during periods of declining interest rates and the resulting *prepayment risk.*

utility revenue bonds

Utility bonds are issued to finance gas, water and sewer, and electric power systems that are owned by a governmental unit. The bonds are normally backed by the user fees that are charged to customers.

Competitive vs non-competitive tenders

When Treasury auctions are held, *securities firms* compete by submitting bids to buy Treasuries through an automated system. These bids are referred to as *competitive tenders* since they specify the price and/or yield at which the firm is willing to buy the Treasuries, as well as how many treasuries they'll buy. *Quantity AND price/yield.* (Competitive bids are similar to limit orders to buy stock at a specific price, but may not be filled). -However, if an *individual* wants to purchase Treasuries, she usually submits a *non-competitive tender.* (Non-competitive bids are similar to market orders placed to buy stock since they don't specify a price and are guaranteed to be filled.) They just indicate quantity they want to buy, they DON'T indicate the price or yield. Think of this more as a market order. -Non-competitive bids are filled first; however, the bidders must agree to accept the yield and price as determined by the auction. All winners of the auction will ultimately pay the lowest price (or highest yield) of the accepted competitive tenders. (this rate is sometimes called the *clearing rate* because it gets cleared at that % yield.) -This single price auction process is referred to as a *Dutch auction.*

unsecured bonds

When corporate bonds are backed by only the corporation's full faith and credit, they're referred to as *debentures.* If the issuer defaults, the owners of these bonds have the same claim on the company's assets as any other general creditor (i.e., before stockholders, but after secured bondholders). Occasionally, companies issue unsecured bonds that have a junior claim on their assets compared to its other outstanding unsecured bonds. These bonds are referred to as *subordinated debentures*. In case of default, the owner's claims are subordinate to those of the other bondholders. If the company defaults, the owners of subordinated debentures will be paid after all of the other bondholders, but still before the stockholders. The order of liquidation/payment priority is: 1.) wages, 2.) taxes, 3.) secured creditors,including secured bonds, 4.) general creditors, including debentures, 5.) subordinated creditors, including subordinated debentures, 6.) preferred stockholders, 7.) common stockholders Two types of unsecured bonds are *high-yield junk bonds, and guaranteed bonds*

commercial paper

When corporations need long-term financing, they issue bonds. Short-term needs are met by the issuance of *commercial paper.* Commercial paper is *short-term, unsecured corporate debt* which typically matures in *270 days or less*. Due to its short maturity, commercial paper is *exempt from the registration* and prospectus requirements of the Securities Act of 1933. Similar to T-bills, commercial paper is usually issued at a *discount;* however, some issues are interest bearing. The standard minimum denomination is $100,000. Since commercial paper is typically issued by corporations with high credit ratings, it's considered very *safe*. Standard & Poor's, Fitch, and Moody's issue credit ratings for commercial paper. S&P will assign ratings from A1 (highest) to A3, and Fitch will assign ratings from F1+ (highest) to F3. The highest rating that Moody's will assign to commercial paper is P-1 (also called Prime 1) with intermediate ratings of P-2 and P-3. Speculative commercial paper receives a rating of *NP (not prime).*

negotiated sale

With a negotiated sale, an issuer brings its issue to market by selecting the lead underwriter or senior manager that will sell the issue to the public. Essentially, the issuer requests the assistance of the firm with which it wants to work. The size of the issue, the coupon rate, possible call provisions, and other details are generally decided during the issuer's negotiation with the underwriter.

secured bonds

With secured bonds, if the issuer falls into bankruptcy, the trustee will take possession of the assets, liquidate them, and then distribute the proceeds to the bondholders. Therefore, if the company defaults, secured bondholders have a higher degree of protection. These include mortgage bonds, equipment trust certificates, collateral trust bonds, and asset-backed securities (ABS)

Federal Home Loan Mortgage Corporation (FHLMC)

aka Freddie Mac. The purpose is to provide liquidity to federally insured savings institutions that need extra funds to finance new housing, especially when credit is tight. Freddie Mac does this by purchasing residential mortgages from the savings institutions. Freddie Mac raises money for its operations by issuing mortgage-backed bonds, pass-through certificates, and guaranteed mortgage-backed certificates. These securities are not backed by the U.S. government; instead, they're backed by other agencies and the mortgages that are purchased by Freddie Mac. *Not technically backed by the govt.* Interest earned on Freddie Mac securities is subject to federal, state, and local tax (i.e., it's *fully taxable*).

other municipal securities

auction rate securities, variable rate demand obligations (VRDOs)

comparing t-bonds, t-bills and t-notes

chart page 6, print w chart on page 5

prepayment risk

in addition to the risks that are inherent in many fixed income investments (e.g. interest-rate, credit, and liquidity risk), mortgage-backed securities are subject to a special type of risk called *prepayment risk* this is the risk that is tied to homeowners paying off their mortgages early when interest rates fall, homeowners have an incentive to refinance and pay off their existing mortgages

other types of corporate bonds

income bonds, eurodollar bonds, yankee bonds, eurobonds

following are test Qs

next

bond taxation summary

pic on desktop

ad valorem

property taxes, often used to finance debts to calculate ad valorem, it is (property's assessed value x millage (tax) rate= tax bill) 1 mill=.001

treasury securities

treasuries are issued by the US govt and are *exempt from registration by the SEC* Treasury securities are considered the *safest type of fixed-income investment* and are suitable for the *most conservative* investors. (They are also very *liquid.*) Since the securities are backed by the full faith and credit of the U.S. government, they have virtually no credit risk. Other credit risk is measured against this "no default" standard of treasury securities The US Government issues securities to finance its operations. the securities may be divided into two major groups: -*1. Marketable (negotiable)* -*2. Non-marketable (non-negotiable)* *Treasury securities are considered marketable* securities since they're traded in the secondary market after issuance. On the other hand, U.S. savings bonds are considered non-negotiable since they're purchased from and redeemed back to the U.S. government. Of the two groups, marketable securities are much more likely to appear on the SIE Examination. Marketable instruments include the following: *treasury bills, treasury notes & treasury bonds, Treasury Separate Trading of Registered Interest and Principal Securities (T-STRIPS), Treasury Inflation-Protected Securities (TIPS), and Treasury Cash Management Bills (CMBs)*

types of debt instruments

treasury securities, agency securities, stripped securities, non-interest bearing securities, mortgage backed securities, possibly add more?