Why does the government issue bonds and securities? Raise money they need to operate the government and finance the debt Government Bonds and Securities

SecurityT-BillsT-NotesT-BondsTIPS Units Issued Units of $1000 Units of $100 Matures Every 4, 13, 26, 52 weeks 1-10 years30 years5, 10, 20 year Interest Rates Discounted Security – Actual price you pay is less than face value of T-Bill Higher Interest rates than T-Bills - you wait longer to get your money back Higher Interest rates than T-Bill and T-Notes Principal increases with inflation and decreases with deflation

Government Bonds and Securities Series EE Savings BondsSeries I Savings Bonds Price ½ of its face valuePay face value Matures 6 months to 30 years5 – 30 years Interest Rates Depends on going rate at purchase Fixed interest rate lower than EE Bonds but increases with inflation Interest Earned Not taxed on interest earned until you cash the EE Bond If you cash out the I Bond before 5 years, there is a penalty

Government Bonds and Securities  Federal National Mortgage Association (Fannie Mae)  Government National Mortgage Association (Ginnie Mae) Average Maturity of 12 years Minimum of $25,000 Very low risk Higher interest rate than other Treasury Securities

Municipal bond Municipal bond (or muni)— *Security issued by a state or local (town, city, county) government *Used to pay for major projects, such as airports, schools, and highways. *Exempt from Federal Tax Government Bonds and Securities

General obligation bond General obligation bond— a bond that is backed by the government that issued it. Government Bonds and Securities Revenue bond Revenue bond— a bond that is repaid from the income generated by the project it is designed to finance. i.e. Toll Road

Bond issues are rated or evaluated by independent rating companies. The two best-known sources of bond ratings are Moody’s Bond Survey and Standard & Poor’s Stock and Bond Guide. The Investor’s Decision to Buy or Sell

QualityMoody’sStandard & Poor Description High Grade AaaAAABest Quality, Lowest risk, Most secure principal and interest AaAAHigh Quality, Less secure than high grade Medium Grade AAFavorable attributes, adequate security BaaBBBNeither highly protected or poorly secured

QualityMoody’sStandard & Poor Description Speculative BaBB Risky elements; moderate protection of principal and interest BB Lacks characteristics of a good investment; questionable payout of principal and interest Default CaaCCC Poor standing; high probability of no payout CaCC Highly risky C Lowest class of Moody; very poor investment C S&P company filed for bankruptcy D Bond issues in default; really bad