US Government and Agency Securities: Rapid Fire

What this video covers

• Why Treasury bills (T-bills) sell at a discount, carry no semiannual coupon, and have zero accrued interest, while Treasury notes (T-notes) and Treasury bonds (T-bonds) pay semiannual coupons and trade in 32nds of par
• How Treasury Inflation-Protected Securities (TIPS) and Separate Trading of Registered Interest and Principal of Securities (STRIPS) both generate phantom income taxed as ordinary income annually, and why tax-deferred accounts are the right home for both
• The critical distinction between STRIPS as direct obligations with full faith and credit, and Treasury receipts (TIGRs, CATS) as trust products with counterparty risk
• Why Government National Mortgage Association (Ginnie Mae or GNMA) carries explicit full faith and credit backing, while Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) are Government-Sponsored Enterprises (GSEs) with only implied backing, and Student Loan Marketing Association (Sallie Mae) has none
• How the pass-through rate on mortgage-backed securities (MBS) is lower than the mortgage rate due to servicing and guarantee fee deductions, and why agency securities are fully taxable at all levels while direct Treasuries are exempt from state and local tax only
• The difference between contraction risk (rates fall, prepayments accelerate) and extension risk (rates rise, prepayments slow), and how Collateralized Mortgage Obligations (CMOs) redistribute prepayment risk across PAC, TAC, companion, and Z-tranches without eliminating it
• Why Collateralized Debt Obligations (CDOs) redistribute credit and default risk rather than prepayment timing risk, and why the unrated equity tranche absorbs losses first and is therefore the riskiest piece
• Why Treasuries are the sole actual/actual day-count exception, while agencies, CMOs, corporates, and municipals all use 30/360