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Treasury Securities
US Treasury Securities
Summary of Treasury Securities:
Treasury Bills
Treasury Notes
Treasury Bonds
Treasury Inflation-Protected
Securities (TIPS)
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Treasury Securities
Introduction to
Treasury Direct
Every income-oriented
investor should be knowledgeable of Treasury Direct, which is electronic
direct investing with the government. They have a whole menu of products,
ranging from series EE and I bonds to treasury bills, notes, bonds, and
tips. Rates, terms, conditions, and fees are all disclosed. It gives you
the flexibility of managing your own savings portfolio, knowing that your
money is secure and backed by the full faith and credit of the U.S.
government.
U.S. Treasury
Securities
U.S. treasury securities
are debt obligations of the U.S. government, and are backed by the full
faith and credit of the United States. The treasury
department offers a full range of investment and savings products, ranging
from bills, notes, bonds and tips. The securities can be purchased directly
through Treasury Direct or through brokers. They are ideally suite for
civic-minded investors looking for extremely secure and liquid investments.
The rates are competitive but low, and there is an active secondary market.
Treasury securities are exempt from state and local taxes, providing
investors with a small yield enhancement.
Interest on U.S.
treasury securities is subject to federal income taxes.
There’s a difference
between savings bonds and treasury bonds: treasury bonds are marketable;
savings bonds are not. Saving bonds are not transferable. Institutional
investors and professional money managers deal with treasury bonds.
Treasury securities are
rated triple A by Moody’s and Standard & Poor’s and are consider a risk-free
investment. There is, however, an interest rate risk inherent in these
securities. The price of treasury securities fluctuates inversely with
interest rates. If interest rates increase, the price of these securities
will decline in the secondary market. If one needs to sell prior to
maturity, and if interest rates have increased, the current FMV can be less
than the original purchase price, resulting in a loss of principal.
Additionally, some treasury bonds issued before 1985 have call provisions.
Since 1986, all
investment securities issued by the treasury are electronic book entries
only. Paper securities are being phased out.
There is an advantage in
using a broker to purchase treasury securities. Banks, brokers and other
institutional investors use the “commercial book-entry system.” When using
this system, treasury instruments can be pledged as collateral. The use of
government securities as collateral is not available using Treasury Direct.
Treasury zero coupon and STRIPS bonds may also be available through a
broker.
Government
securities are an excellent way of preserving one’s capital (and
demonstrating patriotism) while receiving a competitive interest rate.
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T Bills |
T Notes |
T Bonds |
TIPS |
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Type |
Treasury
Bills |
Treasury
Notes |
Treas-ury
Bonds |
Treasury Inflation
Protected Security |
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Term |
Short-term
usually 4, 13
or 26 weeks |
2,3,5 &10
years |
10 to 30 years |
5,10, and 20
years |
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Rate / Int. |
Sold at a
discount |
Fixed rate
paid every
6 months |
Fixed rate
paid every
6 mos. |
Fixed rate
paid every
6 months
Prin. adj.
daily for inflation
and pd. at maturity |
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Min.
Purch. |
$1,000 |
$1,000 |
New bonds avail. 2006 |
$1,000 |
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Maxi.
Purch. |
-Noncompetitive:
$5m
-Competitive: 35%
of offering amount |
Same |
Same |
Same |
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Issue Meth. |
Electronic entry
into your account |
Same
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Same |
Same |
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