Taxable Fixed Income

Investments & Related Information

U S TREASURIES

  • Not rated; implied AAA rating based on the full faith and credit of the US Government
  • Base index used to compare investment alternatives like agencies and corporate bonds
  • Interest pays semi-annually
  • Exempt from state and local tax, subject to federal tax

GOVERNMENT AGENCIES

  • FNMA (Federal National Mortgage Association), FHLMC (Federal Home Loan Mortgage Corp.), FFCB (Federal Farm Credit Bank) and FHLB (Federal Home Loan bank) are US Government Sponsored Enterprises(GSEs)
  • Bonds issued by GSEs are not explicitly guaranteed by the US Government
  • Moody's Investor Service rates the GSEs AAA based on their relationship with the US Government
  • Agencies generally offer higher yields than US treasuries
  • Many agencies contain call provisions; some feature an 'estate put' provision
  • Interest generally pays semi-annually, some pay monthly
  • FHLB and FFCB bonds are exempt from state & local tax; the others are subject to federal, state and local tax

CERTIFICATES OF DEPOSIT

  • All are FDIC insured to a limit of $100,000.00
  • CDs yield about the same as agencies
  • Many contain call provisions; most feature an 'estate put' provision
  • Interest generally pays semi-annually; some pay monthly
  • Subject to federal, state and local tax

CORPORATE BONDS

  • Most are debentures: an IOU of the issuer
  • Yield is determined by credit rating and maturity
  • Corporates generally offer higher yields than agencies
  • Some issues contain call provisions; few feature an 'estate put' provision
  • Interest generally pays semi-annually; some pay monthly
  • Subject to federal, state and local tax

MORTGAGE BACKED SECURITIES

  • Issued by FNMA, FHLMC and GNMA (Government National Mortgage Association)
  • GNMA is backed by the full faith and credit of the US Government
  • Implied AAA rating
  • Collateralized by a pool of home mortgages
  • Mortgage payments are pledged to pay principal and interest on MBS
  • As home owners move, refinance or prepay their mortgage, MBS prepay
  • Assuming a prepayment rate, we calculate yield to 'average life'
  • MBS often yield more than corporate bonds due to the variability of their average life
  • Principal and interest pay monthly
  • Subject to federal, state and local tax

PREFERRED STOCK AND "CAPITAL TRUST" SECURITIES

  • Ranks senior to common stock, but junior to bonds in liquidation
  • Yield is determined by credit rating of issuer
  • Most are listed on the major exchanges
  • Many issues contain call provisions
  • Generally pay a fixed quarterly dividend
  • Subject to federal, state and local tax