Basics Of Federal Bond Issues
Many people link 'investments' with mutual and stock funds. However, as a whole Federal bond issues take up a major portion of the investment market. Annual turnover of US Federal Bond issues is much more than that produced by the collective stock markets.
Even after taking all the factors into consideration and even though it is considered a safe investment option, Federal Bonds do carry a certain amount of uncertainty in the US.
How and why are Federal Bonds issued?
The Central Bank is the main organization which co-ordinates Federal bond issues. Initially, it carries out market surveys to gauge the current investment needs. These surveys include consultation with various entities like banks, investment dealers, and other financial organizations, which have prior experience in managing Federal bond issues.
Prior to introducing federal bonds in the market, the Federal government should decide upon the actual purpose. This could even be construction of a bridge or a refund of government debt, new road or for financing any other project which is put forth to help national taxpayers or other federal constituents. Besides, the Federal government needs to ascertain the legal parameters, which are demanded for by the federal legislation.
Marketing the bonds
The government can choose from a single writer or a group of writers to market the bonds. This is primarily on the basis of the size of the bond issue. Government needs to send out copies of disclosure documents that give information related to bond potential writers, to let them bid for the issue.
Therefore, the government employs the professional bond counsel firms services which look into the legal aspects of the issue. This is done after consulting the official government solicitor. The solicitor and the counseling firm both work together to verify the applicability of the bond issues, in connection with state and federal tax approvals and law. This ensures that the right legal procedures are being followed.
Issuing of Federal Bonds and the marketing phase goes on for a week. In this time period, the underwriters evaluate and review the terms and conditions of the bond issue. It is thereafter easier to quote an suitable bid amount. The process is stopped, when the government hires an underwriter.
If more than one underwriter is to be hired, the government lets all the responsive parties give in their bids. This includes term of the bond issue, amortization schedule, general terms and conditions, the actual amount of the bonds, interest rates and details about certain prepayment provisions.
Completing documentation requirements
In the last and final stage of the process of issuing Federal bonds, the underwriters wire the price of purchase to the paying agent. Keeping in mind the terms and conditions the paying agent transfers the cost of issuance.