Debt instruments and markets lecture 1 survey page 3

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Debt Instruments and Markets Lecture 1: Survey Page 3-4
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US Treasury Bills, Notes, and Bonds, cont'd Treasury auctions The Federal Reserve Bank of New York collects bids. Non-competitive bids consist of a par amount only (limited to $5,000,000). Competitive bids consist of a par amount and a yield. The Treasury first fills all the non-competitive bids and then allocates the remaining securities to competitive bids from lowest to highest (or "stop") yield. "American" auction: competitive bids receive the yield specified; non-competitive bids receive the average yield. "Dutch" auction: all bids receive the stop yield. Agency Bonds Ordinary bonds issued by government agencies such as the Federal National Mortgage Association, the Federal Farm Credit Bank, and the Federal Home Loan Bank, pay fixed semi-annual coupons and par value at maturity. They may be callable. The risk of default is low. Debt Instruments and Markets Lecture 1: Survey Page 5-6
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Corporate Debt Ordinary bonds issued by US corporations pay fixed semi-annual coupons and par value at maturity. They often contain call and sinking fund provisions and may also be convertible into stock. Default risk varies widely. Commercial paper is like a Treasury bill, a short term security making a single payment at maturity. Municipal Bonds Ordinary bonds issued by local governments pay fixed semi-annual coupons and par value at maturity. They are typically callable. The coupon income from a municipal bond is exempt from federal taxes and exempt from state and local taxes in the state in which the bond is issued. Default risk varies widely. Debt Instruments and Markets Lecture 1: Survey Page 7-8
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Stripped Treasury Securities Stripped Treasuries or zero-coupon bonds just make a single payment of par at maturity. Maturities range up to 30 years.
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  • Fall '10
  • Carpenter
  • debt instruments

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