Municipal Securities Market
Municipal securities are debt obligations issued by states, cities, counties, and other governmental entities to raise money to build schools, highways, hospitals, and sewer systems, as well as many other projects for the public good. Municipal securities are the most important way that U.S. state and local governments borrow money to finance their capital investment and cash flow needs. An important distinguishing characteristic of the municipal securities market is the exemption of interest on most municipal bonds from federal income taxes. The implicit subsidy provided by the federal government permits municipal issuers to compete effectively for capital in the domestic securities market. There is currently in excess of $3.72 trillion in outstanding municipal debt.
Treasury Securities Market
The U.S. Treasury securities market is the largest and most liquid market in the world. There is currently $10.92 trillion in outstanding marketable Treasury debt. The U.S. Treasury issues three types of securities: bills, which have a maturity of less than 1 year; notes, which have a maturity of between one and 10 years; and bonds, which have a maturity of greater than 10 years.
Federal Agency Securities Market
Federal agency debt is issued by various government-sponsored enterprises (GSEs) which were created by Congress to fund loans to borrowers such as homeowners, farmers and students. Through the creation of GSEs, the government addressed various public policy concerns about the ability of members of these groups to borrow sufficient funds at affordable rates. Most GSEs rely primarily on debt financing for their day-to-day operations. Among the most active issuers of agency debt securities are: Federal Farm Credit System Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation (Freddie Mac), Federal National Mortgage Association (Fannie Mae), and Tennessee Valley Authority (TVA). There is an estimated $2.10 trillion in agency debt currently outstanding.
Corporate Bond Market
Corporate debt securities are obligations issued by corporations for capital and operating cash flow purposes. Corporate debt is issued by a wide variety of corporations involved in the financial, industrial, and service-related industries. There is approximately $9.10 trillion in corporate debt currently outstanding.
Money Market Instruments
Money market instruments include bankers acceptances, certificates of deposit, and commercial paper. Together these three instruments account for an estimated $2.46 trillion in outstanding instruments. Bankers acceptances are typically used to finance international transactions in goods and services. Certificates of deposit (CDs) are large denomination negotiable time deposits issued by commercial banks and thrift institutions, representing about $1.50 trillion. Commercial paper, which is short term unsecured promissory notes issued by both financial and non-financial corporations, is currently a $952 billion market.
Mortgage Securities Market
Mortgage securities represent an ownership interest in mortgage loans made by financial institutions (savings and loans, commercial banks, or mortgage companies) to finance the borrower’s purchase of a home or other real estate. Mortgage securities are created when these loans are packaged, or “pooled”, by issuers or servicers for sale to investors. As the underlying mortgage loans are paid off by the homeowners, the investors receive payments of interest and principal. The majority of mortgage securities are issued and/or guaranteed by an agency of the U.S. Government, the Government National Mortgage Association (Ginnie Mae), or by government-sponsored enterprises such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Some private institutions, such as subsidiaries of investment banks, financial institutions, and home builders, also package various types of mortgage loans and mortgage pools. The securities they issue are known as “private-label” mortgage securities, in contrast to “agency” mortgage securities issued and/or guaranteed by Ginnie Mae, Fannie Mae, or Freddie Mac. There is an estimated $8.17 trillion in outstanding mortgage-related securities.
Asset-backed securities, called ABS, are bonds or notes backed by financial assets. Typically these assets consist of receivables other than mortgage loans, such as credit card receivables, auto loans, manufactured-housing contracts and home-equity loans. There is approximately $1.70 trillion in debt currently outstanding.