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Fixed-Income Securities: Fabozzi: Investment Management Graphics by
Fixed-Income Securities: Fabozzi: Investment Management Graphics by
Fixed-Income Securities
Example:
Quote of 92-14 = 92 and 14/32; with a basis of $100,000
par value a change in price of 1% = $1000 with 1/32 =
$31.25.
Stripped Treasury securities
Several major brokerages have created an investment
vehicle from Treasury securities. They purchase these
securities, deposit them in a bank custody account and then
separate out each coupon payment and principal. Then a
receipt is issued to investors representing an ownership in
the account. In essence, the security is stripped.
Except for farm related securities, these are not backed by the
U.S. government.
Corporate bonds
The issuer agrees to make coupon payments and repay the principal
value of the bond at maturity. If the institution cannot pay, it is in
default. Bondholders have first claim to the income and assets of a
corporation.
Full faith and credit obligations – used by larger issuers who have
access to taxes beyond property taxes
All revenues from the enterprise are placed in a revenue fund with
disbursements to funds covering
-operation and maintenance fund
-sinking fund
-debt service reserve fund
-renewal and replacement fund
-reserve maintenance fund
-surplus fund
Hybrid bond securities
Insured bonds – backed by insurance policies written
commercially in addition to the credit of municipal
issuer
Credit enhancement
Senior/subordinated structure: cash reserves or
overcollateralization
Credit card receivable-backed securities
Issued by
Banks, retailers, travel and entertainment companies
Cash flow
Net interest, principal, finance charges
Interest to security holders paid periodically (fixed or floating)
Lockout (revolving) period – principal payments made by credit card borrowers
in the pool are retained by trustee and reinvested in more receivables.
Cash flow
Net interest, scheduled principal payments, prepayments
Cash flow
Net interest, scheduled principal payments, prepayments
Prepayments are more stable since the loan balances are small, making
refinancing imprudent. Also, the rate of depreciation is high in the earlier
years making it harder to refinance the loan.