U.S. Treasury notes

U.S. Treasury notes and bonds are coupon bonds that pay interest semiannually. For example, if the bond s coupon rate is 10 percent, a 1,000 investment will give the investor 100, paid out in two semiannual payments of 50. This represents a 10 percent return on investment. 

However, the biggest argument for buying bond mutual funds is that they provide an opportunity for investors who do not have enough money to diversify their investments, as well as a chance for investors to invest sums of money in uneven amounts. For example, an investment in U.S. Treasury notes requires minimum amounts of 1,000 and 5,000 for different issues. Investors with less than these amounts would be otherwise precluded from buying, or if they have more than the minimum but not in an exact, multiple amount, they can easily purchase shares of mutual funds where they can invest in smaller increments. Table A.l summarizes the pros and cons of investing in individual bonds versus bond mutual funds. 

Treasury note A negotiable debt obligation issued by the U.S. government and backed by its full faith and credit, having a maturity of between one and seven years. Also called U.S. Treasury note. 

Interest rate provided by U.S. Treasury bills, notes, and bonds at different dates. 

To illustrate the essence of the asset-allocation problem, 1 begin with a simple example theit includes the following assets U.S. stocks, intemationeil stocks, U.S. bonds, international bonds, and cash. This constitutes a broad asset mix typical of that used by many professional managers. Expected returns are 11.0%, 12.6%, 6.0%, 6.9%, and 5.0%, respectively. The expected standard deviations (risk) of these returns are 12.5%, 14.7%, 4.3%, 7.8%, and 0.0%. Note that the standard deviation of cash returns is zero because this asset is presumed to consist of riskless U.S. Treasury securities. The correlation matrix for asset returns is ... 

The Navy committee met first on July 8 with the Navy s chief technical officers at an officers club at Shiba Park in Tokyo. It noted that the United States was probably working on a bomb and agreed that whether and how soon Japan could produce such a weapon was as yet uncertain. To the task of answering those questions the Navy appropriated 2,000 yen, about 4,700, somewhat less than the Uranium Committee had summoned from the U.S. Treasury at Edward Teller s request at the beginning of the American program in 1939. 

Notes issued in synthetic structures are organized by tranche. With the proceeds from the notes it issues to investors, the SPV purchases high-quality (AAA) liquid securities—for example, U.S. Treasuries, bank asset-backed paper such as credit card ABS, and German bonds, such as Pfandbriefe —to serve as collateral. This collateral will generate LIBOR-related interest and principal cash flows that the SPV passes on to the investors together with the swap premium, which creates an additional credit spread on the notes. The cash flows from the collateral may not match the payments due on the issued notes—for example, the bonds used as collateral may pay a flxed rate and the issued notes a floating one. To remedy this, the... 

Public Debt Online is at http //www.publicdebt.treas.gov. That s right, this is a. gov site—perhaps the only one that is mentioned in this book that offers transactions. On this site, you can buy, direct from Uncle Sam, U.S. savings bonds (remember them ) as well as U.S. Treasury bills, notes, and bonds. (See Figure 9.2.)... 

The second part of the balance sheet in Table 16.3 lists the liabilities and stockholders equity. Current liabilities include all payments that must be made by the company within one year. The total for U.S. Chemicals is 4,153,(XX),0(X). Long-term debts, often in the form of bonds, are due after more than one year from the date of the balance sheet. They total 3,943,(XX),000. Other noncurrent liabilities total 1,754,(XX),(XX) and include pension and other postretirement benefits as well as reserves for any company operations that are discontinued. Total liabilities are 9,850,000,000. We note that liabilities are less than assets by 4,361,(XX),0(X). Thus, by Eq. (16.1), this difference must be the stockholders equity. This equity includes the par value of issued common stock, which totals 1,(XK),000,(X)0. The par value of a share of stock is an arbitrary amount that has no relationship to the market value of the stock, but is used to determine the amount credited to the stock account. If the stock is issued for more than its par value, the excess is credited to the account shown as capital in excess of par value. In Table 16.3, the par value is 1.00 per share but the stock was issued at 4.23 per share. Companies frequently repurchase shares of their common stock, resulting in a reduction of stockholders equity. Because the shares are placed in a treasury, the transaction appears as treasury stock at cost. In Table 16.3, that amount is 3,428,000,000. The other account under stockholders equity is retained earnings, which is the accumulated retained earnings that is increased each year by net income. Tte amount of this entry must be such that Eq. (16.1) is satisfied. This is seen to be tte case in Table 16.3, where the net stockholders equity is 4,361,000,000, giving total liabilities plus stockholders equity as 14,211,000,000, which is equal to total assets. 

Treasury notes have maturities of between 2 and 10 years. Because of their longer maturities, these notes have more interest rate risk associated with them and so their prices fluctuate more than T-bill prices. The U.S. government used to issue Treasury bonds, which carried maturities of 15, 20, and 30 years. The 30-year Treasury bond was just retired in November 2001. Another Treasury security is a "strip" or zero-coupon Treasury security created by separating the income streams of coupon payments and principal, wherein the holder receives no coupon payments, buys the bond at a discount, and is returned the principal at par. There is a high degree of volatility associated with strips. 

The U.S. government offers bills, notes, and bonds to the public through regularly scheduled auctions. The Treasury announces the size of the offering in a press release about a week before the auction, and the news usually appears in all of the financial publications and news broadcasts. If you use the Public Debt web site, you will be informed of the auctions at the time the news release goes out. 

Incidentally, fixed-income securities issued by the federal government such as Treasury bills, notes, and bonds are not rated. Since these bonds are backed by the full faith and credit of the U.S. government, they are considered to be relatively free of default risk. Municipal bonds, however, such as those issued by a city or a state or other local authority, many times are rated, since the finances of local governments can and do change. 

Treasuries Negotiable U.S. government debt obligations, backed by its full faith and credit. They come in three types, which have varying maturities Treasury bills. Treasury notes, and Treasury bonds. Exempt from state and local taxes. 

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