B) Reread the text more carefully and explain how the US government uses debt instruments

US Government Securities

The US government relies heavily on debt financing. Since the 1960s, revenues have seldom covered expenses, and the differences have been financed primarily by issuing debt instruments. Moreover, new debt must be issued in order to get the necessary funds to pay off old debt that comes due.

About two-thirds of the public debt is marketable, meaning that it is represented by securities that can be sold at any time by the original purchaser through government security dealers.

Marketable issues include Treasury bills, notes, and bonds.

US Treasury Bonds have maturities greater than ten years at the time.of issuance, with denominations ranging from $1,000 upward. Some Treasury bond issues have call provisions under which the Treasury has the right to force the investor to sell the bonds back to the government at par value.

US Savings Bonds are nonmarketable securities, offered only to individuals and selected organizations. There is a limit to the amount that may be purchased by any person in a single year. Two types are available: pure discount bonds and bonds that pay interest semiannually but can be redeemed for par value at any time.

To support credit for home purchase, the government has authorized the issuance of participation certificates. The most important certificates of this type are those issued by the Government National Mortgage Association (GNMA or "Ginnie Mae"), they are known as GNMA Modified Pass-Through Securities. Unlike most bonds, GNMA pass-through securities pay investors on a monthly basis an amount of money that represents both a pro rata return of principal and interest on the underlying mortgages.

US Corporate bonds. Corporate bonds are similar to other kinds of fixed-income securities. An issue of bonds is generally covered by an indenture, in which the issuing corporation promises a specified trustee that it will comply with a number of stated provisions, like the timely payment of required coupons and principal on the issue. The major types are as follows:

Mortgage bonds are debt that is secured by the pledge of specific property. In the event of default, the bondholders are entitled to obtain the property in question.

Collateral trust bonds are debt-backed by other securities that are usually held by the trustee.

Debentures are general obligations of the issuing corporation representing unsecured debt. A bond indenture will often require the issuing corporation to make annual payments into a sinking fund.

Words you may need:

treasury bond долгосрочные казначейские обязательства (облигации)

call provision условие займа, предусматривающее право эмитента досрочно выкупить ценные бумаги

par value паритет, номинал

participation certificate сертификат участия

Government National Mortgage Association (GNMA) Правительственная национальная ипотечная ассоциация

pass-through security ценная бумага, выпущенная на базе пула ипотек

pro rata adj, adv пропорциональный, пропорционально

fixed-income security ценная бумага с фиксированным доходом

indenture n письменное соглашение об эмиссии облигаций

trustee n доверенное лицо, опекун

mortgage bond облигация, обеспеченная закладной под недвижимость

pledge n залог

collateral trust bond облигация, обеспеченная другими ценными бумагами, хранящимися на условиях траста

unsecured debt необеспеченный долг

sinking fund выкупной фонд, фонд погашения задолженности