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Government sponsored enterprises

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Definition of Government sponsored enterprises

Government Sponsored Enterprises Image 1

Government sponsored enterprises

Privately owned, publicly chartered entities, such as the Student Loan
Marketing Association, created by Congress to reduce the cost of capital for certain borrowing sectors of the
economy including farmers, homeowners, and students.



Related Terms:

Government bond

See: government securities.


Government National Mortgage Association (Ginnie Mae)

A wholly owned U.S. government corporation
within the Department of Housing & Urban Development. Ginnie Mae guarantees the timely payment of
principal and interest on securities issued by approved servicers that are collateralized by FHA-issued, VAguaranteed,
or Farmers Home Administration (FmHA)-guaranteed mortgages.


Government securities

Negotiable U.S. Treasury securities.


Labour-Sponsored Venture Funds

Venture capital corporations established by labour unions. They function as other venture capital corporations but are subject to government regulation.


Accrual bond

A bond on which interest accrues, but is not paid to the investor during the time of accrual.
The amount of accrued interest is added to the remaining principal of the bond and is paid at maturity.



Alternative mortgage instruments

Variations of mortgage instruments such as adjustable-rate and variablerate
mortgages, graduated-payment mortgages, reverse-annuity mortgages, and several seldom-used
variations.


Bank for International Settlements (BIS)

An international bank headquartered in Basel, Switzerland, which
serves as a forum for monetary cooperation among several European central banks, the Bank of Japan, and the
U.S. Federal Reserve System. Founded in 1930 to handle the German payment of World War I reparations, it
now monitors and collects data on international banking activity and promulgates rules concerning
international bank regulation.


Government Sponsored Enterprises Image 1

Bearer bond

bonds that are not registered on the books of the issuer. Such bonds are held in physical form by
the owner, who receives interest payments by physically detaching coupons from the bond certificate and
delivering them to the paying agent.


Bond

bonds are debt and are issued for a period of more than one year. The U.S. government, local
governments, water districts, companies and many other types of institutions sell bonds. When an investor
buys bonds, he or she is lending money. The seller of the bond agrees to repay the principal amount of the
loan at a specified time. Interest-bearing bonds pay interest periodically.


Bond agreement

A contract for privately placed debt.


Bond covenant

A contractual provision in a bond indenture. A positive covenant requires certain actions, and
a negative covenant limits certain actions.


Bond equivalent yield

bond yield calculated on an annual percentage rate method. Differs from annual
effective yield.


Bond indenture

The contract that sets forth the promises of a corporate bond issuer and the rights of
investors.


Bond indexing

Designing a portfolio so that its performance will match the performance of some bond index.


Bond points

A conventional unit of measure for bond prices set at $10 and equivalent to 1% of the $100 face
value of the bond. A price of 80 means that the bond is selling at 80% of its face, or par value.


Bond value

With respect to convertible bonds, the value the security would have if it were not convertible
apart from the conversion option.


Government Sponsored Enterprises Image 2

Bond-equivalent basis

The method used for computing the bond-equivalent yield.


Bond-equivalent yield

The annualized yield to maturity computed by doubling the semiannual yield.



BONDPAR

A system that monitors and evaluates the performance of a fixed-income portfolio , as well as the
individual securities held in the portfolio. bondPAR decomposes the return into those elements beyond the
manager's control--such as the interest rate environment and client-imposed duration policy constraints--and
those that the management process contributes to, such as interest rate management, sector/quality allocations,
and individual bond selection.


Brady bonds

bonds issued by emerging countries under a debt reduction plan.


Bull-bear bond

bond whose principal repayment is linked to the price of another security. The bonds are
issued in two tranches: in the first tranche repayment increases with the price of the other security, and in the
second tranche repayment decreases with the price of the other security.


Bulldog bond

Foreign bond issue made in London.


Closed-end mortgage

mortgage against which no additional debt may be issued.


Collateral trust bonds

A bond in which the issuer (often a holding company) grants investors a lien on
stocks, notes, bonds, or other financial asset as security. Compare mortgage bond.


Collateralized mortgage obligation (CMO)

A security backed by a pool of pass-throughs , structured so that
there are several classes of bondholders with varying maturities, called tranches. The principal payments from
the underlying pool of pass-through securities are used to retire the bonds on a priority basis as specified in
the prospectus.
Related: mortgage pass-through security


Completion bonding

Insurance that a construction contract will be successfully completed.


Conflict between bondholders and stockholders

These two groups may have interests in a corporation that
conflict. Sources of conflict include dividends, distortion of investment, and underinvestment. Protective
covenants work to resolve these conflicts.


Government Sponsored Enterprises Image 3

Conventional mortgage

A loan based on the credit of the borrower and on the collateral for the mortgage.



Convertible bonds

bonds that can be converted into common stock at the option of the holder.


Convertible eurobond

A eurobond that can be converted into another asset, often through exercise of
attached warrants.


Corporate bonds

Debt obligations issued by corporations.


Cushion bonds

High-coupon bonds that sell at only at a moderate premium because they are callable at a
price below that at which a comparable non-callable bond would sell. Cushion bonds offer considerable
downside protection in a falling market.


Debenture bond

An unsecured bond whose holder has the claim of a general creditor on all assets of the
issuer not pledged specifically to secure other debt. Compare subordinated debenture bond, and collateral
trust bonds.


Deep-discount bond

A bond issued with a very low coupon or no coupon and selling at a price far below par
value. When the bond has no coupon, it's called a zero coupon bond.


Discount bond

Debt sold for less than its principal value. If a discount bond pays no interest, it is called a
zero coupon bond.


Dollar bonds

Municipal revenue bonds for which quotes are given in dollar prices. Not to be confused with
"U.S. Dollar" bonds, a common term of reference in the Eurobond market.


Dollar price of a bond

Percentage of face value at which a bond is quoted.


Domestic International Sales Corporation (DISC)

A U.S. corporation that receives a tax incentive for
export activities.


Equivalent bond yield

Annual yield on a short-term, non-interest bearing security calculated so as to be
comparable to yields quoted on coupon securities.


Eurobond

A bond that is (1) underwritten by an international syndicate, (2) offered at issuance
simultaneously to investors in a number of countries, and (3) issued outside the jurisdiction of any single
country.


Eurodollar bonds

Eurobonds denominated in U.S.dollars.


Euroyen bonds

Eurobonds denominated in Japanese yen.


Extendable bond

bond whose maturity can be extended at the option of the lender or issuer.


Flower bond

Government bonds that are acceptable at par in payment of federal estate taxes when owned by
the decedent at the time of death.


Foreign bond

A bond issued on the domestic capital market of anther company.


Foreign bond market

That portion of the domestic bond market that represents issues floated by foreign
companies to governments.


Freddie Mac (Federal Home Loan Mortgage Corporation)

A Congressionally chartered corporation that
purchases residential mortgages in the secondary market from S&Ls, banks, and mortgage bankers and
securitizes these mortgages for sale into the capital markets.


Full coupon bond

A bond with a coupon equal to the going market rate, thereby, the bond is selling at par.


GEMs (growing-equity mortgages)

mortgages in which annual increases in monthly payments are used to
reduce outstanding principal and to shorten the term of the loan.


General obligation bonds

Municipal securities secured by the issuer's pledge of its full faith, credit, and
taxing power.


Ginnie Mae

See:Government national mortgage association.


Global bonds

bonds that are designed so as to qualify for immediate trading in any domestic capital market
and in the Euromarket.


GMCs (guaranteed mortgage certificates)

First issued by Freddie Mac in 1975, GMCs, like PCs, represent
undivided interest in specified conventional whole loans and participations previously purchased by Freddie Mac.


Graduated-payment mortgages (GPMs)

A type of stepped-payment loan in which the borrower's payments
are initially lower than those on a comparable level-rate mortgage. The payments are gradually increased over
a predetermined period (usually 3,5, or 7 years) and then are fixed at a level-pay schedule which will be
higher than the level-pay amortization of a level-pay mortgage originated at the same time. The difference
between what the borrower actually pays and the amount required to fully amortize the mortgage is added to
the unpaid principal balance.


Gross national product (GNP)

Measures and economy's total income. It is equal to GDP plus the income
abroad accruing to domestic residents minus income generated in domestic market accruing to non-residents.


High-coupon bond refunding

Refunding of a high-coupon bond with a new, lower coupon bond.


High-yield bond

See:junk bond.


Income bond

A bond on which the payment of interest is contingent on sufficient earnings. These bonds are
commonly used during the reorganization of a failed or failing business.


Indexed bond

bond whose payments are linked to an index, e.g. the consumer price index.


Industrial revenue bond (IRB)

bond issued by local government agencies on behalf of corporations.


Insured bond

A municipal bond backed both by the credit of the municipal issuer and by commercial
insurance policies.


International Bank for Reconstruction and Development - IBRD or World Bank

International Bank for Reconstruction and Development makes loans at nearly conventional terms to countries for projects of high
economic priority.


International Banking Facility (IBF)

International Banking Facility. A branch that an American bank
establishes in the United States to do Eurocurrency business.


International bonds

A collective term that refers to global bonds, Eurobonds, and foreign bonds.


International Depository Receipt (IDR)

A receipt issued by a bank as evidence of ownership of one or more
shares of the underlying stock of a foreign corporation that the bank holds in trust. The advantage of the IDR
structure is that the corporation does not have to comply with all the regulatory issuing requirements of the
foreign country where the stock is to be traded. The U.S. version of the IDR is the American Depository
Receipt (ADR).


International diversification

The attempt to reduce risk by investing in the more than one nation. By
diversifying across nations whose economic cycles are not perfectly correlated, investors can typically reduce
the variability of their returns.


International finance subsidiary

A subsidiary incorporated in the U.S., usually in Delaware, whose sole
purpose was to issue debentures overseas and invest the proceeds in foreign operations, with the interest paid
to foreign bondholders not subject to U.S. withholding tax. The elimination of the corporate withholding tax
has ended the need for this type of subsidiary.


International Fisher effect

States that the interest rate differential between two countries should be an
unbiased predictor of the future change in the spot rate.


International fund

A mutual fund that can invest only outside the United States.


International market

Related: See external market.


International Monetary Fund

An organization founded in 1944 to oversee exchange arrangements of
member countries and to lend foreign currency reserves to members with short-term balance of payment
problems.


International Monetary Market (IMM)

A division of the CME established in 1972 for trading financial
futures. Related: Chicago Mercantile Exchange (CME).


Investment grade bonds

A bond that is assigned a rating in the top four categories by commercial credit
rating companies. For example, S&P classifies investment grade bonds as BBB or higher, and Moodys'
classifies investment grade bonds as Ba or higher. Related: High-yield bond.


Junk bond

A bond with a speculative credit rating of BB (S&P) or Ba (Moody's) or lower is a junk or high
yield bond. Such bonds offer investors higher yields than bonds of financially sound companies. Two
agencies, Standard & Poors and Moody's investor Services, provide the rating systems for companies' credit.


Level-coupon bond

bond with a stream of coupon payments that are the same throughout the life of the bond.


Limited-tax general obligation bond

A general obligation bond that is limited as to revenue sources.


London International Financial Futures Exchange (LIFFE)

A London exchange where Eurodollar futures
as well as futures-style options are traded.


Long bonds

bonds with a long current maturity. The "long bond" is the 30-year U.S. government bond.


Low-coupon bond refunding

Refunding of a low coupon bond with a new, higher coupon bond.


London International Financial Futures Exchange (LIFFE)

London exchange where Eurodollar futures as well as futures-style options are traded.


Long bonds

bonds with a long current maturity. The "long bond" is the 30-year U.S. government bond.


Mismatch bond

Floating rate note whose interest rate is reset at more frequent intervals than the rollover
period (e.g. a note whose payments are set quarterly on the basis of the one-year interest rate).


Mortgage

A loan secured by the collateral of some specified real estate property which obliges the borrower
to make a predetermined series of payments.


Mortgage bond

A bond in which the issuer has granted the bondholders a lien against the pledged assets.
Collateral trust bonds


Mortgage duration

A modification of standard duration to account for the impact on duration of MBSs of
changes in prepayment speed resulting from changes in interest rates. Two factors are employed: one that
reflects the impact of changes in prepayment speed or price.


Mortgage pass-through security

Also called a passthrough, a security created when one or more mortgage
holders form a collection (pool) of mortgages sells shares or participation certificates in the pool. The cash
flow from the collateral pool is "passed through" to the security holder as monthly payments of principal,
interest, and prepayments. This is the predominant type of MBS traded in the secondary market.


Mortgage pipeline

The period from the taking of applications from prospective mortgage borrowers to the
marketing of the loans.


Mortgage-pipeline risk

The risk associated with taking applications from prospective mortgage borrowers
who may opt to decline to accept a quoted mortgage rate within a certain grace period.


Mortgage rate

The interest rate on a mortgage loan.


Mortgage-Backed Securities Clearing Corporation

A wholly owned subsidiary of the Midwest Stock
Exchange that operates a clearing service for the comparison, netting, and margining of agency-guaranteed
MBSs transacted for forward delivery.


Mortgage-backed securities

Securities backed by a pool of mortgage loans.


Mortgagee

The lender of a loan secured by property.


Mortgager

The borrower of a loan secured by property.


Multinational corporation

A firm that operates in more than one country.


Municipal bond

State or local governments offer muni bonds or municipals, as they are called, to pay for
special projects such as highways or sewers. The interest that investors receive is exempt from some income taxes.


National Futures Association (NFA)

The futures industry self regulatory organization established in 1982.


National market

Related: internal market


Nationalization

A government takeover of a private company.


Open-end mortgage

mortgage against which additional debts may be issued. Related: closed-end mortgage.


Positive covenant (of a bond)

A bond covenant that specifies certain actions the firm must take. Also called
and affirmative covenant.


Premium bond

A bond that is selling for more than its par value.


Prerefunded bond

Refunded bond.



 

 

 

 

 

 

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