ABSTRACT
This chapter provides the institutional background on the financial securities. United States Treasury securities are debt obligations issued by the US government, and their payment is guaranteed by the taxing authority of the United States. The zero-coupon Treasury securities are called bills. The coupon and interest-paying Treasury securities are called notes or bonds depending on whether the maturity at issuance is from 2 to 10 years or greater than 10 years, respectively. The majority of Treasury securities are traded in the over-the-counter market. In addition to trading in the Treasury securities themselves, there is an active repurchase agreement market for Treasury securities, both overnight and term. Alternatively, a repurchase agreement is simply a forward contract on a Treasury security, having an initial value equal to zero, and with a forward price equal to the repurchase price. There are repo rates for general collateral, and there are often special repo rates for a particular Treasury security.
