Ratings moodys and standard poors placement with

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Ratings – Moody’s and Standard & Poor’s Placement – with institutions o Directly placed paper o Dealer-placed paper Secondary Market – secondary trading is limited. Backing Commercial Paper – not asset backed. Slightly higher return than Treasury securities. Finance companies are frequent issuers. Estimating the Yield Negotiable Certificates of Deposit (NCDs) – A bank time deposit that is negotiable. Placement – corporate treasuries Premium – often, rate is above T-bill yield Repurchase Agreements (Repos) – sale of a short-term security with the condition that the seller will buy it back at a predetermined price. Estimating the Yield Federal Funds – commercial banks borrow and lend excess reserve balances to each other. Banker’s Acceptances – a bank accepts the responsibility to repay a loan to its holder. Facilitates international trade. Steps involved 15
Chapter 7 – Bond Markets Student Notes Money Market Securities Final Notes Institutional use Valuation Limited price movements Risk Globalization of Money Markets Performance of Foreign Money Market Securities 16
Chapter 7 – Bond Markets Student Notes Chapter 7 Objectives To identify the different types of Treasury securities To identify the characteristics of municipal securities To outline the types of corporate debt securities Treasury Securities Treasury Bills – Treasury securities with a maturity of less than one year. These are sold on a discount basis. Treasury Notes – Securities with maturities between 2 and 10 years. These are coupon securities. Treasury Bonds – Securities with maturities greater than 10 years. These are coupon securities. Treasury Inflation Protection Securities (TIPS) – A Treasury coupon security (either note or bond) whose coupon rate is tied to the rate of inflation. Primary Market – Treasuries are sold in frequent well-publicized auctions. ¤ Competitive bids ¤ Noncompetitive bids Secondary Market – over-the-counter market where a group of dealers offer continuous bid and as prices on outstanding Treasuries. Stripped Treasury Securities – Separating all coupon and principal payments into individual securities. For instance, a 10-year semiannual note would convert into 21 separate STRIPS. Quotations – The bid price and the ask price are quoted per hundred of dollars of par value. Salomon Brothers scandal – Salomon took over a Treasury bond auction. Brady Bonds – U.S. Treasury department restructuring program for delinquent LDC debt. Federal Agency Securities Federal Agencies – generally, a private company that was originated by the federal government. 17
Chapter 7 – Bond Markets Student Notes ¤ The Farm Credit System ¤ Housing Credit Agencies ¤ Export-Import Bank ¤ Student Loan Marketing Association (Sallie Mae) ¤ Small Business Administration (SBA) Municipal Bonds State and local government bonds General obligation bonds – provide basic services.

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