V. Bond Types/Sectors In the previous two chapters we discussed a couple of portfolio management tools utilized by fixed income managers to add incremental value to their portfolios: duration adjustment and yield curve positioning. Decisions based on these tools are ultimately used to determine the general maturity structure of the portfolio. The subsequent consideration for bond investors is deciding which types of bonds to then purchase within these maturity ranges. Bonds come in many different shapes and sizes. The two main distinguishing characteristics are the type of issuer and, more importantly, the quality of that issuer. Many different types of institutions use some form of debt to finance their short- and long-term operations. The largest issuers of bonds in the United States can be broken down into four general categories: The U.S. Treasury, U.S. Agencies, Corporations, and Municipalities. U.S. Treasury Let’s begin with the issuer that sets the standard for the bond market: the U.S. Treasury. Despite the fact that in 2000 Japan overtook the U.S. Treasury as the largest issuer of debt in the world, Treasury securities are still the benchmark bonds of choice for global managers due to their perceived high level of both safety and liquidity. Currently there are approximately $1.5 trillion of U.S. Treasury securities outstanding, constituting 28% of the global government bond market as measured by the G7 countries. G7 ...