A sheet of paper attached to a bill of exchange for the purpose of documenting endorsements. The need for an allonge arises as a result of a lack of space on the bill itself. |||Because a bill of exchange is transferable through endorsement, it may be exchanged among so many parties that these parties don't all fit on the bill. In this case, a separate piece of paper - the allonge - is attached to the bill, acting as a legal extension of the document.
Low risk debt obligations issued by enterprises that the U.S. Government sponsors. |||Agency securities are similar to U.S. Treasury Bills in that they pay interest and have low default risk. However, the main differences are that they are not backed entirely by the U.S. Government and the interest income is taxed differently.
Debt issued by a Federal Agency or a government-sponsored enterprise (GSE) for financing purposes. These types of debentures are not backed by collateral, but by the integrity and credit worthiness of the issuer. Officially, agency debentures issued by a Federal Agency, such as the Tennessee Valley Authority, are backed by the full faith and credit of the Untied States government. Agency debentures issued by a GSE are backed only by that GSE's ability to pay. |||The market place appears to believe that GSE Agency debentures carry an implicit guarantee from the United States government. This is due to the GSE's direct borrowing ability from the U.S. Treasury and the importance of the GSE’s Congressional charters and missions. The Agency debenture market is very large. At one point in the late 1990s outstanding Agency debt comprised primarily of the debt issued by Fannie Mae and Freddie Mac nearly surpassed the amount of debt issued by the U.S. Treasury. Some feel the GSE’s have an unfair funding advantage over publicly or privately held corporations, and that the amount of GSE debt and their corresponding investment portfolios pose too large of risk to the entire U.S. financial system. Others believe the role the GSEs play in promoting home ownership, for example, justify their funding advantage.
A bond issued by a government agency. These bonds are not fully guaranteed in the same way as U.S. Treasury and municipal bonds. |||These bonds do not include those issued by the U.S. Treasury or municipalities. They include such agencies as Fannie Mae, Freddie Mac, Sallie Mae and the Federal Home Loan Banks.
The basis for weighing the performance of two investments against each other after taxes have been factored into the equation. |||After-tax basis calculations are often used to compare yields between taxable bonds, such as corporate securities, and tax-exempt municipal bonds. The taxable equivalent yield is the yield an investor would have to earn on a taxable investment in order to match the tax-exempt return of a municipal bond. Variations of the taxable equivalent yield formula can be used to compare government bond yields, which are taxable at the federal level but not subject to state taxes, with municipal and corporate securities.
A slang phrase used when quoting the price of a fixed-income instrument with accruing interest. When revealing the sale price of a bond, a broker or salesman will often express the value as the clean price "and interest".Also written as "and-interest". |||For example, let's examine a bond, selling at par, paying an annual coupon of $8, with a par value of $100. It has been exactly half a year since the bond last paid a coupon. If you wish to purchase this bond, the likely quote you will hear is "$100 and interest". The $100 represents the clean price of the bond. The "and interest" is equal to the accrued interest at the time of sale. Since the bond pays a coupon once a year, and half a year has passed, the "and interest" equals $4 ((1/2) x 8).
A class of debt security in which a portion of the underlying principal amount is paid in addition to periodic interest payments to the security's holder. The regular payment that the security holder receives is derived from the payments that the borrower makes in paying off the debt. |||Mortgage-backed securities (MBS) are one of the most common forms of amortizing security. With an MBS, the monthly mortgage payments that mortgagors make are pooled together and are then distributed to MBS holders. Depending on the way in which a security is structured, holders of these investments may be subject to prepayment risk, as it is not uncommon for the underlying borrower to prepay a portion, if not all, of the debt's principal. In the event that prepayment occurs, the investor will receive the rest of the principal and no more interest payments will occur.
The first municipal bond insurance company, formed in 1971 as a subsidiary of MGIC Investment Corp. of Milwaukee; now more commonly known as Ambac Financial Group, Inc. The American Municipal Bond Assurance Corporation insures new municipal bond offerings worldwide and is one of the leading firms in its field. A municipal bond issuer may purchase insurance coverage in order to increase investor confidence that principal and interest payments will be made in full and on time if the issuer defaults. |||Because of the extra confidence generated by this coverage, insured bonds may be priced higher, have lower interest rates and be more liquid. As well, bonds insured by companies such as the Ambac Financial Group normally take on the credit rating of their insurance companies, raising investor confidence even more. However, as a result of broadening its focus from insuring only bonds to insuring residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs), Ambac and related companies saw their businesses weakened by the housing bust in 2007. As a result, investors should not rely as heavily on bond insurance companies to guarantee their investments.
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