Government Securities Flashcards
Treasury Bills
1yr max term
Issued at a discount from par and investor receives par value at maturity
Treasury Notes
1-10 year term
Issued at $1,000
Pays semi-annual interest
Treasury Bonds
10-30 year term
Issued at $1,000
Pays semi-annual interest
Treasury STRIIP’s
Zero-coupon bond issued by US government
Treasury Receipt
Created by a bank or Broker-Dealer.
They buy Treasury Notes and “flip” them by issuing a new security that’s funded by the T Notes.
Is a Zero-coupon bond
TIPS (Treasury Inflation-Protected Security)
A treasury Security destined to protect the holder from Inflation.
The coupon rate is set at issue but the principle is adjusted every 6 months based on Inflation
Phantom Income
Happens to Zero Coupon Bonds
They don’t get paid interest but their CMV goes up. The dollar amount their price goes up is their Phantom Income because its considered Phantom Income Even though its not real money.
Ginnie Mae
Government National Mortgage Association
Provide financing for mortgages. Those mortgages pay interest and that interest pays back investors
Fannie Mae
Federal National Mortgage Association
Provide financing for mortgages. Those mortgages pay interest and that interest pays back investors
Fredie Mac
Federal Home Loan Mortgage Corporation
Provide financing for mortgages. Those mortgages pay interest and that interest pays back investors
Sally Mae
Student Loan Marketing Association
Provide financing for Student Loans. Those loans pay interest and that interest pays back investors
Federal Farm Credit System
Designed to ensure that farmers have access to capital they need to operate their farms
CMO’s (Collateralized Mortgage Obligation)
A pool of mortgages that pays interest to investors that is sold into the secondary market.
Issued by:
- Government Agencies
- Private Finance Companies
Different Types of CMO’s
- PO (Principal Only)
- IO (Interest Only)
- PAC (Planned Amortization Class) => THESE PROVIDE THE MOST PROTECTION
- TAC (Targeted Amortization Class)
- Private Labeled CMO (created by private companies not government agencies)
Risks of CMO’s
Prepaid Risk - risk the homeowner pays the mortgage off early. Usually means interest rates went down and now the investor has to reinvest that money at a lower interest rate
Extension Risk - Risk the homeowners take longer to pay off the mortgage. Usually means interest rates went up and now investor is stuck with lower interest payments
