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Bonds and Bond Derivatives, Second Edition by Miles Livingston

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2

ISSUERS

This chapter discusses the issuers of securities in the United States, including the US Treasury, municipalities, corporations, US government and government-sponsored agencies, and mortgage issuers.

The US Treasury

The US Treasury has the responsibility of paying US federal government expenditures, collecting taxes, and borrowing to meet the deficit between expenditures and taxes. This borrowing is accomplished by selling debt securities of various types. The large federal deficits of recent years have greatly increased the total amount outstanding of US Treasury debt. Since 1980, annual deficits of over $100 billion have been the norm. The total debt has ballooned to close to $7 trillion. The reader can go to the US Treasury website (treas.gov) and examine the latest Monthly Statement of the Public Debt, which contains detailed information about the debt.

Because of the enormous growth in the federal debt, the Treasury plays an increasingly important role in the debt markets. Treasury debt obligations are the dominant force in the bond market for two reasons. First, the total Treasury debt is enormous. Second, each Treasury issue is large compared to corporate and municipal debt. Treasury issues of $10 billion dollars or more are the norm. The average corporate bond issue is approximately $130 million. Thus, the typical Treasury bond issue is about 75 times larger than the typical corporate bond issue. A large size for each Treasury debt issue implies a large volume ...

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