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Types of Bonds

Questions Investors Should Ask and Information Resources

Many dealers and information vendors provide detailed research and product information on GSE debt securities. Additionally, the GSEs’ own Web sites contain much descriptive information about their debt securities.

Following are some questions that should be asked before investing in any GSE debt securities:

  1. Does this investment conform to my investment guidelines?
  2. Does it also conform to my suitability standards in terms of: portfolio objectives, liquidity needs, cash-flow requirements, credit diversity and structure diversity?
  3. What interest rate assumptions are embedded in this security?
  4. How much additional yield am I receiving in this structure and for what risk?
  5. What is the best-case interest rate scenario for this product?
  6. How might it perform if rates move in the opposite direction?
  7. What is the worst-case interest rate scenario?
  8. Is there leverage in this structure? If so, how does it apply in the best-case and worst-case scenarios?
  9. If the investment has a floating rate, is there a cap, floor or collar? If so, how will these features affect the security’s performance under different interest rate scenarios?
  10. Am I taking the risk of a zero or negative interest payment?
  11. How is my principal repayment affected under different interest rate scenarios? To what extent is principal at risk?
  12. Will there be a buyer for this security at a price that reflects its current value if I have to sell it sooner than I anticipate?
  13. Are there high minimum denominations indicating a complex security that may have a limited universe of possible buyers?
  14. Have I seen all the relevant documentation on this issue?
  15. How can I get a price and analysis on this security?
  16. Do I understand the structure, the issuer and its business?

Investors should keep asking questions until they feel completely secure in their knowledge of the security they are considering for purchase and of the ways it fits with their investment goals.


All information and opinions contained in this publication were produced by the Securities Industry and Financial Markets Association from our membership and other sources believed by the Association to be accurate and reliable. By providing this general information, the Securities Industry and Financial Markets Association makes neither a recommendation as to the appropriateness of investing in fixed-income securities nor is it providing any specific investment advice for any particular investor. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and sources may be required to make informed investment decisions.