Government Bond Market - Advantages

1. It is the most efficient and transparent asset in the world. The spreads are small, which means that the buying and selling prices are close to the same. This allows for better execution prices.
2. Although this could change due to future economic conditions, it is currently accepted in investment circles as the highest quality asset in the world.
3. With very few exceptions, government bonds are non-callable. This means that if interest rates go down, the government cannot take those bonds away from you and replace them with lower interest rate bonds.

Government Bond Market - Disadvantages

1. Anything less than $1,000,000 is an odd lot, which results in higher transaction costs. This is why the Bison Bond I program uses either no-load or exchange traded funds.
2. Yields are almost always the lowest of all competing fixed income securities. Other less credit worthy entities have to pay higher interest rates in order to obtain money. The difference (spread) between those lesser-quality bonds’ interest rates and the rates offered on government bonds is due to credit risk.

Other Fixed Income Assets - Advantages

1. Higher yields.
2. In the case of most municipals - tax exemption.

Other Fixed Income Assets - Disadvantages

1. Less efficient markets.
   1. Wholesale spread larger
   2. Retail mark-ups greater
   3. No transparency - costs hidden
2. Most all issues are callable, thereby reducing the opportunity to achieve higher capital gains.
3. With the exception of very few AAA quality bonds, all other fixed income assets are event sensitive and subject to credit risk.
4. The municipal market is generally the least efficient and least transparent of all fixed income markets.
   1. Most markets are regional in nature. Fewer marker makers reduce competition.
   2. Markets are relatively inactive, therefore spreads are greater.
   3. There is much less regulation than in other markets.
   4. Investors frequently overpay just to obtain tax exemption.

Note:    In our opinion, buying fixed income assets primarily based upon yield is very risky. Higher than normal yields should serve as a possible warning to potential buyers.

Due to the extreme widening in yield spreads, Central Plains Advisors, Inc. commenced using BAA A-rated or better corporate bonds during the last quarter of 2008 in our ladders programs. This may or may not continue in the future.