Treasury Securities
Treasury securities are debt instruments issued by the U.S. government to finance operations, considered the safest investments due to being backed by the full faith and credit of the U.S.
Exam Tip
T-Bills = discount, no coupon. T-Notes/Bonds = semiannual coupon. All are state/local tax exempt.
What are Treasury Securities?
Treasury securities are debt obligations issued by the U.S. Department of the Treasury. They are considered virtually risk-free because they are backed by the full faith and credit of the U.S. government.
Types of Treasury Securities
| Type | Maturity | Interest | Minimum |
|---|---|---|---|
| T-Bills | 4 weeks to 1 year | Sold at discount | $100 |
| T-Notes | 2 to 10 years | Semiannual | $100 |
| T-Bonds | 20 to 30 years | Semiannual | $100 |
| TIPS | 5, 10, or 30 years | Inflation-adjusted | $100 |
| I-Bonds | 30 years | Inflation-adjusted | $25 |
Treasury Bills (T-Bills)
- Sold at a discount to face value
- No coupon payments
- Return = difference between purchase price and face value
- Example: Buy $980, receive $1,000 at maturity = $20 return
Treasury Notes (T-Notes) and Bonds (T-Bonds)
- Pay semiannual interest (coupon)
- Quoted in 32nds (e.g., 98-16 = 98 16/32 = 98.50% of par)
- Primary difference is maturity length
TIPS (Treasury Inflation-Protected Securities)
- Principal adjusts with CPI (Consumer Price Index)
- Fixed coupon rate, but applied to adjusted principal
- Protects against inflation risk
Key Characteristics
| Feature | Description |
|---|---|
| Credit Risk | Virtually none (U.S. government backing) |
| Interest Rate Risk | Yes, especially for longer maturities |
| Taxes | Federal taxable, state/local exempt |
| Liquidity | Very high |
Where to Buy
- TreasuryDirect.gov (primary market)
- Secondary market through brokers
- Mutual funds and ETFs
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Related Terms
Bond
SecuritiesA bond is a fixed-income debt security where the issuer owes the holder a debt and pays interest (coupon) plus principal at maturity.
Yield
SecuritiesYield is the income return on an investment, expressed as a percentage, including interest or dividends received.
Interest Rate Risk
SecuritiesInterest rate risk is the potential for investment losses due to changes in interest rates, particularly affecting fixed-income securities like bonds whose prices fall when rates rise.