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Introduction to Treasury Securities

how to purchase treasury bills

When it comes to conservative investments. nothing says safety of principal like treasury securities. These instruments have stood for decades as a bastion of safety in the turbulence of the investment markets - the last line of defense against any possible loss of principal. The guarantees that stand behind these securities are indeed regarded as one of the key cornerstones of both the domestic and international economy, and they are attractive to both individual and institutional investors for many reasons.

Basic Characteristics

Treasury securities are divided into three categories according to their lengths of maturities. These three types of bonds share many common characteristics, but also have some key differences. The categories and key features of treasury securities include:

  • T-Bills – These have the shortest range of maturities of all government bonds at 4, 13, 26 and 52 weeks. They are the only type of treasury security found in both the capital and money markets, as three of the maturity terms fall under the 270-day dividing line between them. T-Bills are issued at a discount and mature at par value, with the difference between the purchase and sale prices constituting the

    interest paid on the bill.

  • T-Notes – These notes represent the middle range of maturities in the treasury family, with maturity terms of 2, 3, 5, 7 and 10 years currently available. Treasury notes are issued at a $1,000 par value and mature at the same price. They pay interest semiannually.
  • T-Bonds – Commonly referred to in the investment community as the “long bond”, T-Bonds are essentially identical to T-Notes except that they mature in 30 years. T-Bonds are also issued at and mature at a $1,000 par value and pay interest semiannually.

The vast majority of treasury securities also trade in the secondary market in the same manner as other types of bonds. Their prices rise accordingly when interest rates drop and vice-versa. They can be bought and sold through virtually any broker or retail money manager as well as banks and other savings institutions. Investors who purchase treasury securities in the secondary market are still guaranteed to receive the remaining interest payments on the bond plus its face value at maturity (which may be more or less than what they paid the seller for them).

Tax Treatment

Category: Bank

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