AboutDoug Ingram Expertise Fixed income portfolio allocation and strategies for institutional investors. Having designed multi-scenario risk quantification and cash flow projection models for nearly 25 years, Strategic Technical Initiatives can answer your regulatory, SFAS 115 allocation, securities selection, and other questions dealing with yield curve placement and portfolio mix strategies. I perform detailed portfolio analysis and strategy ideas for SAMCO Capital Markets. We are Dallas based, and I am in the Memphis office.
Experience Trading and designing portfolio strategies since 1980.
Question Dear Doug,
I read your answer to the previous question about bonds and debentures. I do not agree that bonds and debentures are identical. I believe that debentures are bonds with no specific pledge of particular assets. If they are issued, for instance, after mortgage bonds already outstanding, they have an inferior claim on the assets of the corporation. So, in comparison to bonds, they are riskier.
Answer True, but it depends on the company and the supporting documents. They still have a primary claim on assets. The terms are sometimes used interchangeably and we didn't get into subordinated debt, collateral trust, etc.
Treasury bonds have "no specific pledge of particular assets". Treasury Bills are also debentures. Treasury bonds are in fact debentures as well. That's why I said they are the same in a "stock versus debt" sense.
When credit rating becomes a concern, the "pecking order" becomes more important. There, I should have been more clear and would have if someone had asked what the difference was for a certain corporation. For Munis and Treasuries, General Obligation debentures are the highest credits.
