Bonds Essay

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History of bonds The United States Treasury began issuing bonds to help fund World War I. The war was financed through an increase in taxation and through the sale of war bonds, known as “Liberty Bonds.” Citizens would buy these liberty bonds from the government; citizens would pay the government a fixed rate in a loan format. After the government received payment, citizens were promised repayment after the bonds matured. Over $21 billion dollars of debt was to be paid back to bond holders. The surplus gathered from the issuance of the bonds; however, were not enough to cover the debt from the war, so the bonds were rolled over into bills (matured in less than one year), notes (matured in less than ten years) and government-issued bonds (matured in more than 10 years.) These bonds, notes, and bills were subsequently paid down regularly until borrowings increased during the Great Depression. Up until the great Depression, the United States Treasury Department issued subscription bonds, which were exchanged through the delivery of a coupon to the public and a maturity price of par. During this time, demand for foreign bonds grew exponentially, forcing the Treasury Department to institute an auction of notes. The auction format enabled the yields in each maturity were used by the public to incorporate a risk-free investment strategy. As a result of this formation, other forms of bonds (such as municipal and corporate bonds) developed through a synthetic yield in proportion to credit considerations. As the debt of the United States’ government grew, foreign governments became holders of the United States’ debt. The deficits, which rose during World War II and the Vietnam War, spawned a debt market and the increase of debt-related trading instruments between government bodies. In the early 1980s, bond yields rose exponentially due to the increases in commodity

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