Treasury and Agency Securities Bills, notes, bonds and TIPS The coupon rate on TIPS is real coupon that investor’s earn over and above the prevailing inflation.

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Presentation transcript:

Treasury and Agency Securities Bills, notes, bonds and TIPS The coupon rate on TIPS is real coupon that investor’s earn over and above the prevailing inflation. The coupon is adjusted for future inflation as principal is compounded by the rate of inflation. Stop bid yield ( lowest price for T/securities) Average bid yield( average price bid by gov/sec dealers) Tail= stop bid yield-Average bid yield,, Bid/cover

Inflation Indexed Treasury Coupon Price yield 5-Year /15/ / Year /15/ / Year /15/ / Year /15/ / 2.78

Price and Quotes for T/bills Quote on bank discount basis: Example A treasury bill with 67 days to maturity, a face value of $1mi and selling for $ would be quoted at 5.507% on a bank discount basis: Discount=$1mil-$989750=$10250, Y=($10250/$1mil)*360/67= CD equivalent yield=360Y/360-t(Y) The CD equivalent yield for the previous example: Will be equal to 5.564%

Stripped treasury Securities Trade mark products ( the animal brand) STRIPS( direct obligation of the US gov, since years notes are eligible TRs Stripping and reconstitution Tax treatment of STRIPS Federal agency securities