Treasury Bonds

What is a Treasury Bond?

Treasury bonds, or T-Bonds are the most well known type of bond. They are issued by the United States government and therefore considered without risk. Treasury bonds are issued in $1,000 increments and pay semi-annual coupon payments. Due to the riskless nature of these securities, investors turn to T-Bonds when there is instability in the credit and equity markets. This is called a "flight to quality". One key advantage of treasury securities is the embedded call protection that exists in them. As we discussed in our callable bonds discussion, call protection for the bond holder is paramount, especially when interest rates are trending lower. Treasury bonds are not callable.

Where can I buy Treasury securities?

T-Bonds are issued through U.S. Treasury; however, the primary means of debt issuance is through auction by the federal reserve bank. The treasury auction offers three different security types which are differentiated by their term to maturity. Treasury Bills have a term to maturity of less than 1 year, Treasury Notes have a term of 2 to 10 years, while the treasury bonds mature in 10 to 30 years.

The treasury auction is now more accessible than ever to a small investor. Treasury Direct was established to allow individual investors to be on the same page with the institutions. There are no transaction fees and you will get the same rates that the institutional investors will get. If you are interested in this option, you can visit http://www.treasurydirect.com/. Another great feature of treasury direct is that it allows you to consolidate all your treasury securities into one single account. Very easy to manage in terms of having a consolidated view of your holdings and also in terms of designating where interest payments will be made.

Aside from the risk free nature of treasury securities, they offer tax advantages as well. Treasuries are only taxable at the federal level and this gives it another distinct advantage over other bond securities when performing your total return analysis. In an ever increasing world of risk, treasury securities offer you a safe-haven with a decent return as well. Treasury bonds cannot be passed up when you are looking for a long term debt security.


Types of Treasury Securities:
Treasury Bills >>
Treasury Notes >>
Treasury TIPS >>
Treasury STRIPS >>
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