US Government and Agency Securities: Rapid Fire

What this video covers

• How the Treasury lineup differs by maturity: T-bills up to 52 weeks (discount, zero coupon), T-notes 2-10 years, and T-bonds 20-30 years (semiannual coupons, quoted in 32nds), plus why the 30-year bond carries the greatest interest rate risk
• Why Treasury Inflation-Protected Securities (TIPS) and Separate Trading of Registered Interest and Principal of Securities (STRIPS) create phantom income taxed as ordinary income annually, and why both belong in tax-deferred accounts
• The critical distinction between full faith and credit (Ginnie Mae only) versus implied backing (Fannie Mae and Freddie Mac as Government-Sponsored Enterprises (GSEs)) versus no backing (Sallie Mae)
• How pass-through mortgage-backed securities (MBS) work: monthly payments, pass-through rate lower than the mortgage rate, contraction risk when rates fall, and extension risk when rates rise
• How collateralized mortgage obligations (CMOs) redistribute prepayment timing risk across tranches: Planned Amortization Class (PAC), Targeted Amortization Class (TAC), companion, and Z-tranche
• How collateralized debt obligations (CDOs) differ from CMOs by redistributing credit and default risk across senior, mezzanine, and equity tranches (with equity being the riskiest, not safest)
• The three brutal exam traps: Treasuries are state and local tax exempt but not federal; Treasuries use actual/actual day count while agencies, CMOs, corporates, and munis use 30/360; agency securities do not share the Treasury state tax exemption