discount securities

Regarding the cash flow type, there exist, on the one hand, discount securities and, on the other
hand, fixed and floating coupon securities. As for maturity level, the 1-year maturity is the rontier
separating money-market instruments (with maturity below it) from bond instruments (with maturity above it). For example, Treasury securities with original maturity equal or below 1 year are called Treasury bills; they are discount securities. Treasury securities with original maturity between 2 years and 10 years are called Treasury notes, and Treasury securities with original maturity over 10 years are called Treasury bonds; both are coupon securities, and some of them are stripped. According to the maturity type, the security can be retired or not prior to maturity.

A security with a single maturity is called a term security while a security that can be retired prior to maturity is called a callable security. Although the US government no longer issues callable bonds, there are still outstanding issues with this provision. Apart from this, Treasury bonds are bullet bonds, meaning that they have no amortization payments. Concerning the interest-rate ype, agency securities, municipal securities and most Treasury securities are nominal coupon-bearing securities. Only a few Treasury securities are inflation-linked, that is, they bear real coupons.

They are called TIPS (Treasury Inflation Protected Securities). Markets Treasury securities are traded on the following four markets: the primary market, the secondary market, the when-issued market and the repo market.

The primary market is the market where newly issued securities are first sold through an auction
which is conducted on a competitive bid basis. The auction process happens between the Treasury and primary/nonprimary dealers according to regular cycles for securities with specific maturities. Auction cycles are as follows: 2-year notes are auctioned every month and settle on the 15th. Five-year notes are auctioned quarterly, in February, May, August and November of each year, and settle at the end of the month. Ten-year notes are auctioned quarterly, in ebruary,
May, August and November of each year, and settle on the 15th of the month. Thirty-year bonds are auctioned semiannually, in February and August of each year, and settle on the 15th of the month. Auction is announced by the Treasury one week in advance, the issuance date being set one to five days after the auction.


The secondary market is the market where previously issued securities are bought and sold,
a group of US government security dealers offering continuous bid and ask prices on specific
outstanding Treasury securities. It is an over-the-counter market.

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