Finance Journal

Investment Securities

Municipal bonds - two categories General obligation bonds: backed by full faith and credit of the govt. Can be paid from any source of revenue. Revenue bonds: can be paid only from certain funds.
Structured notes: FNMA, GNMA and similar institutions pool their securities, whose interest rates could periodically reset based on a reference rate. It has a cap and floor rate included in the agreement.
Securitized assets: Are backed by mortgage loans, auto loans, etc. of similar type and quality. Three categories - Pass thru', CMO, MBS. Pass thru' - backed by mortgage loans, removed from issuer's balance sheet. Interest and principal are 'passed thruough' to investors. CMO - Collateralized Mortgage Obligations are pass thru's divided into multiple tranches each with its own risk and interest rate. MBS - Mortgage backed securities are not removed from issuer's balance sheet. Interest and principal of loans are not connected to those of MBSs.
Stripped securities: Zero coupon bonds that are formed from either principal or interest of Tbonds or MBSs.

Source: Banking Management and Financial Services

posted by Valli @ 10:36 AM