Treasury Notes and Bonds
T-notes are issued with maturities ranging up to 10 years, while bonds are issued with maturities ranging from 10 to 30 years. They make semiannual interest payments called coupon payement.
The coupon income or interest is given in the column “coupon”. The interest is paid in two semiannual installments. The bid ans asked price represent unit of 1/32 of a point.
The yield to maturity is the rate of return earned by an investor who buys the bond today at the market price.
T-notes are issued with maturities ranging up to 10 years, while bonds are issued with maturities ranging from 10 to 30 years. They make semiannual interest payments called coupon payement.
The coupon income or interest is given in the column “coupon”. The interest is paid in two semiannual installments. The bid ans asked price represent unit of 1/32 of a point.
The yield to maturity is the rate of return earned by an investor who buys the bond today at the market price.
Inflation-protected Treasury Bonds (TIPS)
The principal amount on these bounds is adjusted in proportion to increases in the Consumer Price Index. Therefore, they provide a constant stream of income in real dollars.
Federal agency debt
Some government agencies issue their own securities to finance their activities. These agencies are formed to channel credit to a particular sector of the economy that Congress believes might not receive adequate credit through normal private sources. For example (Fannie Mae, Ginnie Mae and Freddie Mac)
International Bonds
Many firms borrow abroad and many investors buy bonds from foreign issuers. There is a thriving international market, largely centered in London.
An Eurobond is a bond denominated in a currency other than that of the country in which it is issued. In contrast to bonds that are issued in foreign currencies, many firms issue bonds in foreign countries but in the currency of the investor.
Municipal Bonds
They are issued by local state and governments. They are similar to Treasury and Corporate Bonds except that their interest income is exempt from federal, state and local income taxation. Capital gains taxes, however must be paid when the bond mature or if sold for more than the purchase price.
General obligation bonds are backed by the “full faith and credit” (taxing power) of the issuer
General obligation bonds are backed by the “full faith and credit” (taxing power) of the issuer
Revenue bounds are backed either by the revenues from the project they finance, or by the particular municipal agency operating the project.
An industrial development bond is a revenue bond that is issued to finance commercial enterprises.
The investor choosing between taxable and tax-exempt bonds must compare after-tax return on each bond. We can also compute the tax bracket at which investors are indifferent between taxable and tax-exempt bonds. This ratio has fluctuated around .75, which means that an investor whose tax bracket exceeds 25% will derive a greater after-talx yield from municipal
Corporate Bonds
Corporate Bonds are similar to Treasury Bonds. They differ in degree of risk. We can distinguish among secured bonds, which have specific collateral backing them in the event of firm bankruptcy. Unsecured bonds, called debentures, which have no collateral; and subordinated debentures, which jave a lower priority claim to the firm’s assets.
They sometimes come with options attached. Callable bonds give the firm the option to repurchase the bond. Convertible give the bondholder the option to convert each bond inta a stipulated number of shares of stock.
Mortgages and Mortgage-Backed Securities
These securities have become a major component of the fixed-income market. This is either an ownership claim in a pool of mortgages, or an obligation that is secured by such a pool. The great majority fo mortgage-backed securities were issued by Fannie Mae and Freddie Mac. Most of them where conforming mortgages, however a large amount of subprime mortgages where sold by private-label issuers.
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