Beruflich Dokumente
Kultur Dokumente
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Learning Objectives
Understanding
the different types of securities the Treasury issues the operation of the primary market for Treasury securities the role of government dealers and government brokers the secondary market for Treasury securities how Treasury securities are quoted in the secondary market the zero-coupon Treasury securities market the major issuers in the federal agency securities market the functions of government-sponsored enterprises that issue securities
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Treasury Securities
The U.S. Treasury securities market is the most active and liquid in the world for two reasons: i. volume (in terms of dollars outstanding, for both total debt and single issue size) ii. liquidity The Department of the Treasury is the largest single issuer of debt in the world. Therefore the dealer spread between bid and ask price is considerably narrower for Treasuries than in other sectors of the bond market.
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Treasury notes mature in 1-10 years from issue; Treasury bonds mature more than 10 years from issue.
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The Treasury makes an adjustment for inflation semiannually by adjusting the principal value which is due at maturity. This is called the inflation-adjusted principal. While the coupon rate does not change, the dollar amount of the coupon payment changes as the principal value is adjusted for inflation.
At maturity the investor receives the greater of the inflation adjusted principal or par.
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TIPs example
If a TIP has a coupon of 2% and a $10,000 principal at issue, the coupon payment is .02*10,000 = $200/year .
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The Treasury Secretary determines whether an issue will be sold on an interest-bearing or discount basis and may establish that the price will be set on a competitive (auction) or other basis.
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Treasury first sets aside enough of the securities being auctioned to satisfy the noncompetitive bids, then begins to accept the competitive bids, starting with the lowest yield bid (which has the highest price).
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Treasury securities trade prior to the time they are issued by the Treasury on a when-issued (WI) basis. When-issued trading for both bills and coupon securities extends from the day the auction is announced until the issue day.
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Treasury bill bids and offers are quoted on a bank discount basis, not on a price basis. The yield on a bank discount basis is computed as follows:
D 360 Yd F t
Yd = annualized yield on a bank discount basis (expressed as a decimal), D = dollar discount (which is equal to the difference between the face value and the price), F = face value t = number of days remaining to maturity.
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Quote
91-19+ 107-222
109-066
19 22
6
1 0
0
0 2
6
91.609375 107.6953125
109.2109375
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A stripped security is separated into its component parts: each interest payment and its principal payment at maturity.
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall
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The first two entities in the above list were placed in conservatorship by the U.S. government in September 2008, so their debt is government guaranteed.
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