ABSTRACT
This chapter introduces the money market and US Treasury instruments and then define various interest rates or yields as the rates of returns for investing in various fixed-income instruments. The bulk of fixed-income instruments are coupon bonds. The short rate is associated with a savings account in a bank. In reality, savings accounts for institutions and for individuals offer different interest rates, which reflect different overhead management costs for institutional and individual clients. Term rates are associated to certificates of deposit (CD). A CD is a deposit that is committed for a fixed period of time, and the interest rate applied to the CD is called a term rate. The corporate bond market is also called a credit market, where the uncertainty of credit worthiness is the major source of risk and returns. In 1985, the US Treasury launched its Separate Trading of Registered Interest and Principal of Securities program.
