Cash Equivalents and Fixed Income Securities - U.S. Government Securities
There are three main types of
- Treasury Bills
- These are short-term securities and are issued with three-month, six-month and nine-month maturities.
- Three-month Treasury bills are considered cash equivalents.
- Treasury bills are issued at a discount from par, and they mature at par.
- Treasury Notes
- These are intermediate-term securities and are issued with one- to 10-year maturities.
- They are sold at par and pay semiannual interest.
- Treasury notes are quoted as a percentage of par value in 32nds.
- For instance, a price of 98:16 means that the price of the note or bond will be 98.5 percent of par (that is, 98 and 16/32).
- Treasury Bonds
- These are long-term securities that were issued with maturities of 30 years.
- They have the same characteristics as Treasury notes but are usually callable five years prior to maturity.
- The government stopped issuing 30-year Treasury bonds in February 2002, but resumed in February 2006.
- Treasury STRIPS
- An acronym for Separate Trading of Registered Interest and Principal of Securities
- These are zero-coupon bonds sold directly to the public.
- STRIPS are sold only with maturities of 10 years or more.
- An acronym for Treasury Inflation Protection Securities
- These newer securities are unique, since they offer investors protection against purchasing power risk.
- TIPS have a fixed interest rate for the life of the bond, but the principal amount is adjusted every six months based on the rate of inflation.
- Note that these adjustments will not cause the bondholder to receive less than par at maturity, even if the principal was decreased due to such adjustments.
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