Debt securities — Treasuries, corporates, munis, yield math
**US Treasury securities:** • **T-bills** — ≤1 year, sold at discount, no coupons. Quoted on a discount-yield basis. • **T-notes** — 2-10 year, semiannual coupons, quoted in 32nds (e.g., 99-16 = 99 + 16/32 = 99.50). • **T-bonds** — 20-30 year, semiannual coupons. • **TIPS** — principal adjusts with CPI; coupon is fixed % of adjusted principal. • **STRIPS** — stripped zero-coupon Treasuries.
**Corporate bonds** — senior secured → senior unsecured → subordinated → junior subordinated. Indenture is the contract (Trust Indenture Act of 1939). Key covenants: negative pledge, limitation on debt, change-of-control put.
**Municipal bonds:** interest is exempt from federal income tax (generally) and, for in-state residents, from state tax (triple-tax-exempt). Types: • **GOs (general obligation)** — backed by taxing power. • **Revenue bonds** — backed by project revenue (toll roads, water/sewer). • **IDBs, PABs** — industrial/private activity.
**Yield math:** • **Current yield** = annual coupon / market price. • **YTM** = all cash flows discounted so PV = price. • **YTC** = same to the first call date. • **Taxable-equivalent yield** = muni yield / (1 − marginal rate).
**Bond price risks:** interest-rate risk (duration measures sensitivity; longer duration = more price volatility per 1% rate move), credit/default risk (Moody's Aaa–C, S&P AAA–D; BBB-/Baa3 is the investment-grade cutoff), call risk, reinvestment risk, inflation risk.