Unit 2: Types and Characteristics of Fixed Income Securities Flashcards
S&P Investment Grade
AAA, AA, A, BBB (All CAPS)
Moody Investment Grade
Aaa, Aa, A, Baa (lower case a)
Investment grade liquidity
IG bonds have highly liquidity
junk bonds have higher yields
Corp/Muni Bond price display
1/8s = $1.25
Ex, 90 1/8 = 901.25
Treasury Security Pricing
.1 = 1/32 of $10
90.8 (or 90.08) = 900+8/32 = 902.50
Format = 900.1 to 900.31
Convertible Bonds
Fixed an indenture.
Conversion price to par value
Stock will trade equivalent % higher or lower
Different Types of Treasuries
T-Bills= 4-52 weeks, issued at discount
T-Notes= 2,3,5,7,10 years
T-Bonds=10-30 years
TIPS
fixed rate, but principal adjusts with inflation
-the principal adjustment is taxable
GNMA
full faith and credit of govt, passthrough
FNMA
does not have full faith and credit, but also passthrough
MBS risks
prepayment/reinvestment risk
Tennessee Valley authority
not officially backed, next to risk free
Liquidation priority
Secured creditor
Unsecured creditor
Subordinated debt
preferred shareholder
common shareholder
Tax Equivalent Yield
Muni Coupon/(100-tax rate)
Eurobonds
pay in foreign currency
Eurodollar bonds
US issues with non US issuers that pay in US dollars
-no currency risk, but some transparency risk, rated, potential higher yield
Yankee Bond
US dollar denominated bond issued by non-US entity in US market
Brady bonds
foreign bonds, asset backed, dollar denominated. NOT US govt backed. can use any security to pledge, but usually zero coupon treasury
Zero Coupon Bond
Issued at discount, has phantom tax, volatile. lower yield = more volatility?
Callable bonds are usually called when
rates fall
Convertibles
either bond to stock, or stock to bond, can have anti-dilutive feature
Money markets
under 1 yr maturity
Jumbo CDs, 100K+, tradeable, FDIC up to $250K, no prepayment principal
Secured Overnight Financing Rate (SOFR)
the new LIBOR
Demand Account
another name for regular checking account
