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Other Types of Bonds

Other Types of Bonds - Interest is exempt from federal...

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Other Types of Bonds Government Bonds U.S. Treasury Securities ( treasuries ) Municipal Securities ( munis ) Agency Securities ( agencies ) Zero-Coupon Bonds ( zeros ) Floating–Rate Bonds ( floaters ) 1
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Government Bonds U.S. Treasury Securities (federal government debt) Treasuries are backed by the full faith and credit of the U.S. government, and are viewed as having no credit (default) risk. It is the most active and liquid bond market. Treasuries are exempt from state income taxes. T-Bills – Pure-discount with original maturity of < 1 year. 2 Treasury Auction Handout Treasury Securities Rates http://www.treasurydirect.gov/RT/RTGateway?pa
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Government Bonds Municipal Securities (state/local government debt) Municipals are issued by states, counties, cities, and divisions of municipalities, such as school districts or water treatment facilities. There are varying degrees of default risk based on the issuer; rated similar to corporate debt.
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Unformatted text preview: Interest is exempt from federal income taxes (sometimes state). ▫ Historically, munis yield 80%-90% of treasuries. 3 Municipal Bonds http://www.youtube.com/watch? Cash Strapped Cities 4 • Declining property tax revenue from foreclosures have caused cities to struggle. • High retail vacancy rates have also resulted in declining sales tax revenue. WSJ – 6/8/11 Cash Strapped States • Yields on state munis are rising… – …increasing the borrowing cost on new debt for cash-strapped states. – …decreasing the price on outstanding debt in the secondary market. 5 WSJ – 1/14/11 Government Bonds • Agency Securities • The U.S. has entities organized by Congress to provide funding support for housing and agricultural sectors. ▫ Government-Owned ▫ e.g.: TVA ▫ Government-Chartered (GSE) ▫ e.g.: Fannie Mae and Freddie Mac 6...
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