US Government Securities

The US government relies heavily on debt financing. since the 1960s, revenues have seldom covered expenses, and the differences have been financed primarily by issuing debt instruments. Moreover, new debt must be issued in order to get the necessary funds to pay off old debt that comes due.

About two-thirds of the public debt is marketable, meaning that it is represented by securities that can be sold at any time by the original purchaser through government security dealers.

Marketable issuers include Treasury bills, notes, and bonds.

US Treasury Bonds have maturities greater than ten years at the time of issuance, with denominations ranging from $1,000 upward. Treasury bond issues have call provisions under which the Treasury has the right to force the investor to sell the bonds back to the government at par value.

US Savings Bonds are nonmarketable securities, offered only to individuals and selected organizations. There is a limit to the amount that may be purchased by any person in a single year. Two types are available: pure discount bonds and bonds that pay interest semiannually but can be redeemed for par value at any time.

To support credit for home purchase, the government has authorized the issuance of participation certificates. The most important certificates of this type are those issued by the Government National Mortgage Association (GNMA or “Ginnie Mae”), they are known as CNMA Modified Pass-Through Securities. Unlike most bonds, GNMA pas-through securities pay investors on a monthly basis an amount of money that represents both a pro rata return of principal and interest on the underlying mortgages.

US Corporate bonds. Corporate bonds are similar to other kinds of fixed-income securities. An issue of bonds is generally covered by an indenture, in which the issuing corporation promises a specified trustee that it will comply with a number of stated provisions, like the timely payment of required coupons and principal on the issue. The major types are as follows:

Mortgage bonds are debt that is secured by the pledge of specific property. In the event of default, the bondholders are entitled to obtain the property in question.

Collateral trust bonds are debt-backed by other securities that are usually held by the trustee.

Debentures are general obligations of the issuing corporation representing unsecured debt. A bond indenture will often require the issuing corporation to make annual payments into a sinking fund.

Words you may need:

treasury bond – довгострокові казначейські зобов’язання

call provision – умови позики, що передбачає право емітента достроково викупити цінні папери

par value – паритет, номінал

participation certificate – сертифікат участі

Government National Mortgage Association (GNMA) – Урядова національні іпотечна асоціація

pass-through security – цінний папір, що випущений на базі пулу іпотек

pro rata – пропорційний, пропорційно

fixed-income security – цінний папір з фіксованим доходом

indenture – письмова угода про емісію облігацій

trustee – довірена особа, опікун

mortgage bond – облігація, що забезпечена заставною під нерухомість

pledge – застава

collateral trust bond – облігація, що забезпечена іншими цінними паперами, що зберігаються на умовах трасту

unsecured debt – незабезпечений борг

sinking fund – викупний фонд, фонд погашення заборгованості

žTESTS

I.Choose the correct answer:

1. Money markets deal in:

a) short-term securities;

b) long-term securities;

Capital markets deal in:

a) short-term securities;

b) long-term securities.

2. An investor who purchases new securities is participating:

a) in a primary financial market;

b) in a secondary financial market.

3. The internal bond market is also called:

a) primary market;

b) secondary market;

c) external market;

d) national market.

4. A market where bonds of issuers not domiciled in the country are issued and traded is called:

a) the domestic bond market;

b) the foreign bond market.

A market where issuers domiciled in the country issue bonds and where those bonds are traded is called:

a) the domestic bond market;

b) the foreign bond market.

5. Bonds traded in US foreign bond market is called:

a) matador bonds;

b) Rembrandt bonds;

c) bulldog bonds;

d) Samurai bonds;

e) Yankee bonds.

II. Match what statements are true and what are false. Results write to the table:

1.There are many different financial markets, each one consisting of many institutions, dealing with different instruments.

2.Financial markets are classified only as primary or secondary markets.

3.Money markets deals in long-term securities having maturities of ten or less.

4.The largest issuers are central governments.

5.Capital markets deal in short-term securities having maturities greater than one year.

6.There is a uniform system for classifying the global bond markets.

7.The external bond market is commonly referred to as the Eurobond market.

Table

True
False

III. Fill the tables:

Дата добавления: 2014-11-29