Explanation of U.S. Treasury Bonds

Treasury bonds are debt obligations of the U.S. government

The U.S. government borrows money by issuing debt securities through the U.S. Treasury. The Treasury market is widely followed as an indicator for interest rates and investors purchase Treasury bonds for the risk free interest they pay.

Types

The U.S. Treasury classifies its different securities into bills, notes and bonds. Bills have maturities of one year or less. Treasury notes are issued with maturities of two to 10 year and Treasury bonds have a 30-year maturity at issue. The term Treasury bonds is often used to describe all types of Treasury securities.

Function

Treasury bonds are issued with a fixed interest payment called the coupon rate. A T-bond holder will receive half the annual coupon amount of interest every six months and the bond's face amount when it matures. Treasury bonds are backed by the full taxing power of the U.S. government and considered to be one of the safest investment available.

How to Invest

Treasury bonds are sold through an auction process by the Treasury. Auctions are held for the different security types every month. A investor can buy Treasuries from the Treasury through the Treasury Direct website or through a broker.

Treasury Market

Treasury securities include an active and liquid secondary market. Individual and institutional investors can buy and sell Treasuries in the secondary market with low spreads and commissions. The current price of a Treasury bond will be based on the coupon rate of the bond in relation to the current market rate for similar Treasury bonds.

References

• TreasuryDirect: Treasury Bonds
• Investopedia: Treasury Bond