An agency of the United States Department of the Treasury that is responsible for borrowing funds for the federal government to use, maintaining accounts of the government's outstanding debts and providing services to other federal government agencies. The Bureau of Public Debt obtains debt financing for the government by selling fixed-income securities, such as Treasury bills, bonds, notes and similar types of debt instruments. |||The Bureau of Public Debt borrows about $5 trillion dollars worth of funds every year for the federal government. It manages to do this through over 200 auctions of marketable securities each year, in which investors bid for the securities as they are released by the government. The Bureau of Public Debt has over 40,000 offices located throughout the U.S. to facilitate the auctions and sales of its debt securities to the public.
Members of the NYSE that typically trade in inactive bonds. Also known as the inactive bond crowd or book crowd. |||The name cabinet crowd arises from the fact that these members will typically enter limit orders for transacting these bonds which are kept in "cabinets" adjacent to the bond trading floor until the limit prices are attained.
A convertible security that is trading well below its conversion value. The result is that the security is valued as regular debt because there is very little chance that it will ever reach the convertible price before maturity. |||This is a convertible that is now a non-convertible because the convertible price is 50% or more above the current share price. Some investors have found success in trading busted convertibles. While the possibility of converting into stock is usually remote, busted converts usually trade at prices and yields very close to other nonconvertible debt (so you don't compromise returns). Meanwhile, if by chance the stock rebounds, the bond could become extremely valuable.
A security with an embedded call provision that allows the issuer to repurchase or redeem the security by a specified date. Since the holder of a callable security is exposed to the risk of the security being repurchased, the callable security is generally less expensive than comparable securities that do not have a call provision. |||The conditions of the call provision are established at the time the security is issued. Callable securities are commonly found in the fixed-income markets and allow the issuer to protect itself from overpaying for debt. For example, a bond issuer may choose to redeem a certain issue when the current market rate falls below the coupon rate of the bond by a set amount. This allows the issuer to reissue the bonds at a lower rate and avoid paying a higher interest rate.
An FDIC insured certificate of deposit (CD) that contains a call feature similar to other types of callable fixed-income securities. Callable CDs can be redeemed (called away) by the issuing bank prior to their stated maturity, usually within a given time frame, and at a preset call price. |||A bank adds a call feature to a CD so it does not have to continue paying a higher rate to the CD holder if interest rates drop. Callable CDs are often redeemed at a premium to their purchase price as an incentive for investors to take the call risk. For example, if a bank issues a traditional CD that pays 4.5% to the investor, and interest rates fall to a point where the bank could issue the same CD to someone else for only 3.5%, the bank would be paying 1% higher rate for the duration of the CD. By using a callable CD, the bank can pay a premium to stop paying the higher rate.
A bond that can be redeemed by the issuer prior to its maturity. Usually a premium is paid to the bond owner when the bond is called. Also known as a "redeemable bond". |||The main cause of a call is a decline in interest rates. If interest rates have declined since a company first issued the bonds, it will likely want to refinance this debt at a lower rate of interest. In this case, company will call its current bonds and reissue them at a lower rate of interest.
The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem the issue prior to maturity. This means the bondholder will receive payment on the value of the bond and, in most cases, will be reinvesting in a less favorable environment (one with a lower interest rate). |||Typically, bond issuers will call a bond because of the high rate they are paying on the bond. If interest rates have declined since it first issued the bonds, issuers will often call the bond once it becomes callable and will create a new issue at a lower rate. The bondholders will then lose out on the high rate of their bond and will have to invest in a lower rate environment.
A step-up bond that cannot be called after completing its first-step period. The issuer of the bond reserves the option to call back the bond until the first step is reached. A canary call may only be exercised on predetermined dates. |||The canary call is similar to a Bermuda option, as it must be called on specific dates. If the issuer of the bond chooses not to call before the canary call expires, the bond will remain a standard step-up bond, where the coupon rate will increase with each step-up period.
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