Chapter 8: U.S. Treasury and Government Agency Debt

Chapter summary

Chapter 8 covers U.S. Treasury and government agency debt. Direct Treasury obligations — bills (discount basis, <1 year), notes (2–10 years), bonds (10–30 years), and TIPS (inflation-adjusted) — carry the full faith and credit of the U.S. government. Agency securities (FNMA, FHLMC) are GSEs with implied but not explicit backing. Only GNMA has explicit government backing. STRIPS separate coupon and principal; interest accretes and is taxed annually.

Key concepts

• Types of Treasury Securities
• Interest-Bearing Securities
• Non-Interest-Bearing Securities
• Accrued Interest
• The Primary Market for U.S. Treasury Securities
• Agency Securities
• Mortgage-Backed Securities
• Prepayment Risk
• Collateralized Mortgage Obligations (CMOs)
• Collateralized Debt Obligations (CDOs)
• Taxation
• Types of Treasury Securities

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