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Types Of Fixed Income Analysis
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Types Of Fixed Income Analysis

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  • 1. TYPES OF FIXED-INCOME ANALYSIS
  • 2. SAVINGS DEPOSITS
    • COMMERCIAL BANKS
      • their financial products include various fixed-income securities, and are
        • usually insured by a federal agency, such as the Federal Deposit Insurance Corporation, known as the FDIC
  • 3. SAVINGS DEPOSITS
    • OTHER SAVINGS INSTITUTIONS:
      • Savings and Loan Companies
      • Mutual Savings Banks
      • Credit Unions
  • 4. THE MONEY MARKET
    • DEFINITION : a market for buyers and sellers of short-term (less than one year in maturity) financial products
  • 5. THE MONEY MARKET
    • MONEY MARKET INSTRUMENTS
      • commercial paper
      • certificates of deposit
      • Bankers’ acceptances
      • eurodollars
      • repurchase agreements (repos)
  • 6. U.S. GOVERNMENT SECURITIES
    • TYPES OF GOVERNMENT SECURITIES
      • U.S. Treasury Bills
        • issued on a discount basis
        • maturities up to 52 weeks
        • sold by auction (bid process)
  • 7. U.S. GOVERNMENT SECURITIES
    • TYPES OF GOVERNMENT SECURITIES
      • U.S. Treasury Notes
        • longer term than T-bills
        • from one to ten years
        • semiannual coupon payments
        • current owners are registered
        • issued in denominations of $1000 or more
        • active secondary market
  • 8. U.S. GOVERNMENT SECURITIES
    • TYPES OF GOVERNMENT SECURITIES
      • U.S. Treasury Bonds
        • maturities greater than ten years
        • denominations in $1,000 or more
        • some have call provisions
  • 9. U.S. GOVERNMENT SECURITIES
    • TYPES OF GOVERNMENT SECURITIES
      • U.S. Savings Bonds
        • nonmarketble and offered only to individuals
        • Series EE are pure discount bonds
        • Series HH mature in 20 years with semiannual coupon payments
  • 10. U.S. GOVERNMENT SECURITIES
    • TYPES OF GOVERNMENT SECURITIES
      • Zero Coupon Treasury Security Receipts or Coupon stripping
        • Treasury bonds are purchased and placed in trust with a custodian
        • sets of receipts issued for each coupon date
        • another set of receipts issued for certain maturity dats
  • 11. FEDERAL AGENCY SECURITIES
    • BONDS OF FEDERAL AGENCIES
      • Department of Defense
      • Export-Import Bank
      • Federal Housing Authority
      • Postal Service
      • Tennessee Valley Authority
  • 12. FEDERAL AGENCY SECURITIES
    • BONDS OF FEDERALLY SPONSORED AGENCIES
      • Federal Home Loan Bank
      • Federal National Mortgage Association
      • Student Loan Mortgage Corporation
      • Farm Credit Bank
      • Resolution Funding Corporation
  • 13. STATE AND LOCAL GOVERNMENT SECURITIES
    • ISSUING AGENCIES
      • States
      • Special Districts
      • Municipalities, Counties and Townships
  • 14. STATE AND LOCAL GOVERNMENT SECURITIES
    • TYPES OF MUNICIPAL BONDS
      • General Obligation
      • Revenue
      • Industrial Development
  • 15. CORPORATE BONDS
    • TAX TREATMENT
      • How is the income from a bond treated in the tax return of the corporation?
        • discount basis
          • discount taxed as ordinary income by federal government
        • coupon basis
          • coupon taxed annually
          • interest payments by corporation considered expenses to reduce taxable income
  • 16. CORPORATE BONDS
    • THE INDENTURE
      • DEFININTION : a legal document formally describing the terms of the legal relationship between a bond issuer and bondholders.
  • 17. CORPORATE BONDS
    • THE INDENTURE
      • The Trustee
        • acts to protect the interests of bondholders
        • facilitates communications between them and the issuer
        • the indenture promises the trustee that it will comply with a number of stated provisions
  • 18. CORPORATE BONDS
    • THE INDENTURE
      • includes other terms such as the sale of assets, issuance of other bonds, dividends payment changes, and other issues that may change the profitability and solvency of the issuer
  • 19. CORPORATE BONDS
    • TYPES OF BONDS
      • mortgage
      • collateral trust
      • equipment obligations
      • debentures
      • income
      • guaranteed
  • 20. CORPORATE BONDS
    • CALL PROVISIONS
      • the option to pay off the bond at par at any time prior to maturity
  • 21. CORPORATE BONDS
    • THE INDENTURE
      • Two Kinds of Call Provisions:
        • no calls in first five years or
        • call premium is specified in the provision at time of issue
  • 22. CORPORATE BONDS
    • SINKING FUNDS
      • requires issuer to make annual payments to a fund
      • the fund pays part of the principal each year
      • trustee may also repurchase bonds in the open market
  • 23. FOREIGN BONDS
    • WHAT CONSTITUTES A FOREIGN BOND?
      • DEFINITION: foreign bonds are bond offered in another currency outside the issuers country of origin
      • Example:
        • a yankee bond is a foreign bond denominated in U.S. dollars issued in the U.S. by a Canadian firm
  • 24. PREFERRED STOCK
    • DEFINITION: a hybrid form of security that has characteristics of both common stocks and bonds
      • similar to a perpetual bond
      • receive preferential treatment before common stock in order of dividend payment
      • unpaid dividends usually accumulate
      • some are convertible to common stock

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