Supranational Bonds

An endowment fund is searching for a bond issued by a government entity to add yield to its fixed income portfolio. The fund is willing to accept a moderate level of credit risk. Which of the following investment-graded bonds is the fund _most_ likely to purchase?

Incorrect. World Bank issues and other supranational entities typically are supported by groups of national governments, so they have little risk. This means the yield will not be sufficient to attract this endowment fund.

Incorrect. US Treasury bonds have little or no credit risk and will have the lowest yield among the three choices. This type of bond will not add yield to the portfolio.

Correct. Nonsovereign government bonds typically have higher credit risk than those issued by federal governments. This would make the bond more attractive to the endowment fund because it will have a higher yield within the acceptable credit risk range.

World Bank issue

US Treasury bond

Nova Scotia province bond