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U.S. Treasury securities (bonds, bills, and notes) are debt obligations of the U.S. government, the largest debt issuer in the world. Since these debt obligations are backed by the “full faith and credit” of the US government, and thus by its ability to raise tax revenues and print currency, U.S. Treasury securities are considered the safest of all investments. They are viewed in the market as having no “credit risk,” meaning that it is virtually certain your interest and principal will be paid on time.
Treasury bills mature in one-year or less. Treasury notes mature between 2-10 years while treasury bonds, also known as long bonds, mature between 20-30 years.
Due to the unique degree of safety provided in the US Treasury as a credit, the interest offered by US Treasuries is ordinarily lower than for other widely traded debt with similar length of maturity, such as corporate bonds.
Treasury bonds can have certain positive tax attributes - US Treasury interest is not taxable at the state or local level. In order to determine the fully taxable equivalent to a US Treasury, divide the Treasury rate by the reciprocal of your cumulative state and local tax obligations:
(Treasury rate) / (1 - Your state and local tax rate)
US Treasury securities are divided into Treasury bills (auctioned in 3 month, 6 month and 1 year maturities) which are quoted on a yield basis, and Treasury notes (2 year, 5 year, 10 year and 30 year) which are quoted on a price basis. Series I Treasury Bonds and Treasury Inflation Protected Securities (TIPS) are also US Treasury securities and are discussed in detail on the relevant pages. Other than Series I Bonds which must be purchased directly from the U.S. Treasury, US Treasury securities may be purchased at auction directly from the U.S. Treasury or through primary deals (a series of investment banks). There is a very vibrant secondary market for all US Treasuries, ensuring liquidity (although the price will fall dramatically if yields rise).
Issue / Term | Maturity Date | Coupon | Price* | Yield |
3 Month Treasury |
9/24/2009 |
0 |
0.18% |
|
6 Month Treasury |
12/24/2009 |
0 |
0.34% |
|
12 Month Treasury |
6/03/2010 |
0 |
|
0.45% |
2 Year Treasury |
6/30/2011 |
1.125% |
100-01 |
1.09% |
3 Year Treasury |
6/15/2012 |
1.875% |
100-24 |
1.60% |
5 Year Treasury |
6/30/2014 |
2.625% |
100-14 |
2.52% |
10 Year Treasury |
5/15/2019 |
3.125% |
97-02 |
3.48% |
30 Year Treasury |
5/15/2039 |
4.25% |
99-12 |
4.29% |
* Prices on 3 month, 6 month and 1 year Treasury Bills are generally quoted in terms of yield.
Due to a significant rush to safety in short duration Treasuries, yields have fallen dramatically, and these are not competitive with fully-taxable short term Certificates of Deposit or with online savings accounts.
Long duration Treasuries are not cash equivalent securities as they may lose value quickly if interest rates rise. Following the Federal Reserve annoucement on March 18, 2009 that it would purchase up to $300 billion in long-dated Treasuries, Treasury yields fell dramatically. With that reality against the backdrop of inflation on the horizon, many observers believe that longer dated Treasuries are not currently a good store of value for investors.
The purchase of longer duration Treasury bonds near maturity at a premium in secondary markets can provide tax losses on maturity - a positive tax attribute that can offset gains that you may have.
Series I Treasury Bonds may protects your principal from losing value and provides you with a competitive return, although the return is lessened by a three month interest penalty where you redeem the bond in fewer than five years from the issue date (and the bond absolutely cannot be redeemed within one year of issue).
Treasury Inflation Protected Securities (TIPS) are designed to protect investors against a loss of value of your principal
due to inflation, but ordinarily bear greater risk of
decline in value of principal (unless you are purchasing
TIPS on the secondary market that are near maturity).
Both TIPS and I Bonds are US Treasury instruments with
the same perfect credit that are tied to the Consumer
Price Index for Urban Consumers (CPI-U) and therefore
provide better protection that ordinary US Treasuries
in a rising interest rate environment. Series I Treasury Bonds adjust
to the rising interest rate environment through semi-annually
adjusted changes in the interest rate; TIPS through
adjustments in the value of the principal.
Please note that if you are purchasing TIPS or ordinary Treasuries through a bank, virtually all banks charge a commission. Find out what commission your bank is charging before entering into any Treasury transactions. Series I Treasury Bonds must be purchased directly from the U.S. Treasury.