Definition of Non-Government Securities

Mortgage-Backed Securities

A mortgage-backed security is supported by an undivided interest in a pool of mortgages or must deeds held by private lenders or government agencies. The market for mortgage backed securities issued by the governmental agencies is right behind the market for Treasury securities insofar as liquidity and risk are concerned.

International investors have been attracted to this market because of the high returns and relative safety.

Municipal Bonds

Municipal bonds can be divided into two categories: the longer-term general obligations (GO bonds) and the shorter-term revenue notes issued in anticipation of tax receipts or other income. These securities are issued by municipalities, such as state and local governments, to finance schools, roads and other public works.

Corporate Bonds

Issues of corporate bonds are often complex than Treasury bond issues. They sometimes include call options, sinking funds, warrants and indexing terms that complicate estimations of their relative riskiness and worth.

Foreign Bonds

Foreign bonds are issued by foreign borrowers are called Yankee bonds. Most operations at this type are generated by Canadian utility companies or foreign governments.

The Secondary Market

Some non-Treasury securities are traded on organized exchanges. Institutional investors that acquire corporate bonds on the primary market attach considerable importance to the potential liquidity of the secondary market. Consequently, they are attracted to the larger issues.

The Japanese Bond Market

The Japanese government bond (JGB) market is the second largest in the world behind the US Treasury market. The central instrument of the JGB market is the ten-year bond, accounting for over half of public government debt and 90% of daily market turnover.

Government Issues

The short term end of the market is less liquid than the long-term sector and most foreigners are barred from it.

Financing Bills

Financing bills are used mainly as instruments for open market operations in pursuit of monetary policy. They are sold mainly to the Bank of Japan and therefore, hold little interest for foreign investors.

Treasury Bills

Japanese Treasury bills resemble US T-bills. They have maturities of three and six months and are issued twice a month at public auction.

Medium-Term Notes

Once in every two months two-year bonds are issued by means of an auction. They pay a semi-annual coupon and are traded in the over-the-counter market.

Zero Coupon Bonds

Five-year zero coupon bonds are issued by means of a syndicate once every two months.

Long-Term Bonds

Long-term bonds are issued once a month in a process that combines an auction with syndicated underwriting. The auction accounts for 60% of the issue and the syndications for 40%. It determines the yield at which will be issued and controls the allocation of bonds among syndicate members.

The Secondary Markets

Trading hours are weekdays from 8.40 to 11.15 a.m. and 12.45 to 5.00 p.m. on the broker to broker (BB) screens. Dealers include securities houses, city banks, trust banks and regional banks as well as a number of foreign firms. Most trades take place over the counter on a bid-ask basis.