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Questions and Answers
Bonds issued by the International Monetary Fund (IMF) are most accurately described as:
Bonds issued by the International Monetary Fund (IMF) are most accurately described as:
- non-sovereign government bonds.
- supranational bonds. (correct)
- quasi-government bonds.
Relative to the yields on nonsovereign bonds, sovereign bond yields may be lower because of the:
Relative to the yields on nonsovereign bonds, sovereign bond yields may be lower because of the:
- regulatory requirements, forcing some financial institutions to hold government debt. (correct)
- requirement to distribute them in an auction format.
- greater risk associated with their issuers.
In an auction to issue sovereign bonds, the bonds are allocated first to:
In an auction to issue sovereign bonds, the bonds are allocated first to:
- competitive bidders starting with the highest yield.
- noncompetitive bidders. (correct)
- competitive bidders starting with the lowest yield.
The cutoff yield associated with a government bond issuance is best described as the yield of the successful competitive bid with the:
The cutoff yield associated with a government bond issuance is best described as the yield of the successful competitive bid with the:
Fixed income classifications by geography most likely include:
Fixed income classifications by geography most likely include:
The Federal Reserve Bank of the United States will most likely work with primary dealers to enact which of the following transactions?
The Federal Reserve Bank of the United States will most likely work with primary dealers to enact which of the following transactions?
PD Bank is a primary dealer that submits bids for third parties at public auctions. The bids are most likely for the purchase of debt securities issued by:
PD Bank is a primary dealer that submits bids for third parties at public auctions. The bids are most likely for the purchase of debt securities issued by:
A government entity is using a single-price auction to issue new debt in the hopes of minimizing yield volatility. The price that all investors will pay under this format is associated with the:
A government entity is using a single-price auction to issue new debt in the hopes of minimizing yield volatility. The price that all investors will pay under this format is associated with the:
Flashcards
Supranational Bonds
Supranational Bonds
Bonds issued by multilateral organizations like the International Monetary Fund (IMF).
Quasi-Government Bonds
Quasi-Government Bonds
Bonds issued by agencies established or sponsored by a national government.
Non-Sovereign Government Bonds
Non-Sovereign Government Bonds
Bonds issued by state, provincial, or local governments or municipal entities.
Lower Sovereign Bond Yields
Lower Sovereign Bond Yields
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Noncompetitive Bidders
Noncompetitive Bidders
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Cutoff Yield
Cutoff Yield
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Emerging Market Bonds
Emerging Market Bonds
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Expansionary Monetary Policy
Expansionary Monetary Policy
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Primary Dealers
Primary Dealers
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Cutoff Yield in Auction
Cutoff Yield in Auction
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Study Notes
Supranational Bonds
- Supranational bonds get issued by multilateral organizations like the IMF
Quasi-Government Bonds
- Quasi-government bonds get issued by agencies established or sponsored by a national government
Non-Sovereign Government Bonds
- Non-sovereign government bonds get issued by state, provincial, and local government or municipal entities
Sovereign Bond Yields
- Sovereign bond yields can be lower than nonsovereign bond yields due to regulatory requirements
- Regulatory requirements necessitate that some financial institutions hold government bonds, reducing their yields relative to non-sovereign debt
- Sovereign debt typically carries less risk, resulting in a lower yield
Sovereign Bond Auctions
- In an auction of sovereign bonds, the bonds get allocated first to noncompetitive bidders
- Afterwards bonds are allocated to competitive bidders starting with the highest price, which is also the lowest yield
Government Bond Issuance
- The cutoff yield associated with a government bond issuance refers to the yield of the successful competitive bid with the lowest price
- In single-price auctions, all investors will pay the price associating with this yield
- But in multiple-price auctions, successful bidders will pay the price they bid
Fixed Income Classification
- Classifying fixed income securities by geography includes developed market or emerging market bonds
Supranational Bonds Classification
- Classifying fixed income securities can be done by the type of issuer
Municipal Bonds Classification
- Classifying fixed income securities can be done by the type of issuer or by taxable status
Federal Reserve Bank (The Fed)
- The Federal Reserve Bank enacts monetary policy
- Monetary policy, not fiscal, gets enacted by The Fed
- Primary dealers act as counterparties for the purchase (expansionary) or sale (contractionary) of Treasury securities to enact monetary policy
Fiscal Policy
- Fiscal policy involves government spending and taxes
- Fiscal policy is not executed by The Federal Reserve Bank
Primary Dealers
- Public auctions get used by sovereign issuers to issue government debt securities
Primary Dealers - PD Bank
- Primary dealers are financial institutions that make competitive bids, submit bids on behalf of third parties, and act as counterparties to the central bank in monetary policy transactions
- Corporations and not-for-profits do not use auction formats
Single-Price Auction
- A government entity might uses a single-price auction to issue new debt to minimize yield volatility
Cutoff Yield Definition
- Cutoff yield gets defined as the yield of the successful competitive bid with the lowest price
- All investors will pay the price associating with this yield in a single-price auction
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