Brady Bonds are debt instruments, generally from third world countries, that may have a US Treasury bond as collateral.

• A. Debt securities issued by U.S. municipalities
• B. Debt instruments from third-world countries
• C. Corporate bonds of large U.S. banks
• D. Government agency securities

Answer: (B)

Brady Bonds are a form of sovereign debt issued by developing countries, often created under the Brady Plan to restructure their external obligations and sometimes backed by U.S. Treasury collateral. The key idea is that these instruments come from governments of developing nations, not from municipalities, corporations, or U.S. government agencies. The collateral aspect with U.S. Treasuries is what gave many Brady Bonds extra credit support, but the defining trait is sovereign debt from a developing country. The other options describe bonds issued by different entities: municipalities (local governments), corporations, or U.S. government-sponsored agencies, none of which capture the sovereign, developing-country nature of Brady Bonds.