us government securities

e d u c a t i o n
b o o k l e t
GOVIES
Introduction to
government & agency
securities
STOCKCROSS®
F I N A N C I A L S E RV I C E S
u.s. government securities
Definition
U.S. Government Securities are debt instruments issued directly by the U.S. Government. Maturities range from 3 months to 30 years and are backed by the full faith and credit of
the U.S. Government. U.S. Government Securities’ interest payments are taxed only at the federal level – states and municipalities cannot tax interest income on U.S. Debt.
Marketable Government Securities
Marketable: Marketable securities are Treasury Bills, Bonds, and Notes that are issued by the U.S. government in regular auctions.
Treasury Bills: Treasury Bills have maturities ranging from one month to one year. Bills are purchased at a discount, or lower than par (i.e. a purchaser purchases the Bill at $950
to receive $1000 principal payment in three months ($50 return in three months).
Treasury Notes: Treasury Notes are intermediate term notes ranging from 1 to 10 years. Investor receives par value ($1000/note) at maturity. The holder of a Treasury Note
receives semi-annual interest payments at a stated rate.
Treasury Bonds: Treasury Bonds have maturities greater than 10 years. They are traded and quoted like treasury notes.
Treasury STRIPS: Treasury STRIPS are traded through financial institutions and are backed by the full faith and credit of the U.S. Government. Holders of Treasury Notes and
Bonds can separate interest and principal payments.
government agency securities
U.S. Federal Agencies
Federal Agencies are owned by the U.S. Government and issue debt on their own behalf.
Backed by the full faith and credit of the U.S. Government.
Government Sponsored Entities (GSEs)
Corporations created by Congress to make loans to certain groups (i.e. students, farmers,
homeowners). Bonds issued by GSEs are not guaranteed by the full faith and credit of the
U.S. Government.
government national
mortgage association
The Government National Mortgage Association (GNMA or Ginnie Mae) pools mortgages, places them in a portfolio, and sells
to investors. GNMA is one of the most well-known federal agencies issuing debt. Unlike other GSEs, GNMA debt is guaranteed
by the full faith and credit of the U.S. Government. It is also fully taxable at the federal, state, and local level.
GNMA Risks
Interest Rate Risk: If rates rise, an investor may lose the opportunity to gain a higher return.
Principal: As mortgages are prepaid, investors risk receiving an early return of money invested.
Refinancing: Since the pools consist of mortgages, refinancing or selling of homes can result in early payments to
investors.
government sponsored entities
Federal Farm Credit System (FCS)
A system of banks and associations that lend money to the agricultural sector.
Federal Agricultural Mortgage Corporation (FAMC, Farmer Mac)
Provides a secondary market for farm mortgage and rural housing loans.
Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac)
A publicly held company that primarily maintains a secondary market for residential mortgages.
Federal Home Loan Bank (FHLB)
A system of 12 regional banks that makes low-cost loans to members who make residential mortgage loans.
Federal National Mortgage Association (FNMA/Fannie Mae)
A private corporation that principally provides a nationwide secondary market for single and multi-family residential mortgages.
gse
Fun Facts
The United States Government is the largest
issuer of debt in the world.
The United States Government has never
defaulted on its debt.
Direct obligations of the United States
Government are some of the most actively traded
and liquid securities in the world.
risks
Default
Unlike agencies, GSEs are not fully guaranteed by the government.
Taxation
Federal, local, and state taxation rules vary depending on the agency and your state of residence. It is
important to review any tax implications prior to investing.
Prepayment
Some securities issued by the GSE’s are tied to mortgages and may pay principal back to holders prior to
maturity. This, in turn, may force the investor to re-invest at less favorable rates.
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Disclaimer
Information about the investment products contained in this booklet is solely for informational purposes and does not constitute a specific
recommendation of either an offer to sell or the solicitation of an offer to buy any investment. Any specific investment terms are
indicative only and may not reflect an actual investment that is, or will be, available for purchase from StockCross Financial Services,
Inc. The information herein is not, and is not intended to be, a complete discussion of all material information you should know about
any investment or investment class. You should carefully read the relevant prospectus and related supplements or other offering
documents prior to making a purchase. You should not rely on the information contained in this presentation in connection with
the purchase of any investment product.
There shall be no sale of the investments discussed herein in any jurisdiction in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of such jurisdiction.
The investments or strategies referenced do not take into account the investment objectives, financial situation
or particular needs of any specific person. Product suitability must be determined for each individual investor.
It is your responsibility to verify any information contained in this booklet before making any investment
decision.
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