TAILIEUCHUNG - Charles J. Corrado_Fundamentals of Investments - Chapter 12

CHAPTER 12 Government Bonds . Treasury bonds are among the safest investments available because they are secured by the considerable taxing powers of the federal government. Many bonds issued by federal government agencies, and by state and local | CHAPTER 12 Government Bonds . Treasury bonds are among the safest investments available because they are secured by the considerable taxing powers of the federal government. Many bonds issued by federal government agencies and by state and local municipal governments are also nearly free of default risk. Consequently government bonds are generally excellent vehicles for conservative investment strategies seeking predictable investment results. The largest and most important debt market is that for debt issued by the federal government of the United States. This market is truly global in character since a large share of federal debt is sold to foreign investors and it thereby sets the tone for debt markets around the world. In contrast the market for debt issued by states and municipalities is almost exclusively a domestic market since almost all . municipal securities are owned by . investors. These two broad categories make up the government bond market. In this chapter we examine securities issued by federal state and local governments which combined represent more than 7 trillion of outstanding securities. Government Bond Basics The . federal government is the largest single borrower in the world. In 1999 the gross public debt of the . government was more than 5 trillion. Part of this debt is financed internally but the bulk is financed by the sale of a wide array of debt securities to the general public. Responsibility for managing outstanding government debt belongs to the . Treasury which acts as the financial agent of the federal government. 2 Chapter 12 The . Treasury finances government debt by issuing marketable securities and nonmarketable securities. Most of the gross public debt is financed by the sale of marketable securities at regularly scheduled Treasury auctions. Marketable securities include Treasury bills Treasury notes and Treasury bonds often simply called T-bills T-notes and T-bonds respectively. Outstanding .

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