Treasury Market Final Summary

A compilation of key vocabulary and concepts from the Treasury Market lecture notes to aid in studying.

Financial Instrument

A promise of future cash flows.

Credit (Default) Risk

The risk that the borrower fails to repay.

Interest Rate Risk

The risk that a security's value changes when market rates change.

Inflation Risk

The risk that purchasing power erodes over time.

Liquidity Risk

The risk of not being able to sell quickly at a fair price.

Risk-Return Relationship

Higher risk generally requires a higher return.

Treasury Bills

Short-term securities issued at a discount, paying no interest but redeemed at face value at maturity.

Coupon Payments

Interest payments made periodically on bonds.

Yield Curve

A graph showing Treasury yields across different maturities.

Deficit vs. Debt

Deficit refers to the annual gap between spending and revenue, while debt is the cumulative total of all deficits.

Non-Competitive Bids

Bids from retail investors specifying only the amount they wish to buy with no set yield.

Competitive Bids

Bids from institutional investors that specify both the amount and the yield they are willing to accept.

Stop-Out Yield

The highest accepted yield that determines the price all winning bidders pay.

Quantitative Easing (QE)

Large-scale purchases of Treasuries and MBS to stimulate the economy.

Quantitative Tightening (QT)

The gradual reduction of the Fed's balance sheet by letting securities mature without reinvestment.