Series 7

By Investopedia AAA

Debt Securities - Government Debt

U.S. Treasury securities are all negotiable, meaning they can be traded freely. They are also non-interest bearing, meaning they are sold at a discount and redeemed at face value.

Treasury Securities
There are three types of Treasury securities (in all cases the "T" stands for "Treasury"), each type being distinguished by its maturity, or the time until it can be redeemed at face value:

  1. T-bills have maturities of three months, six months or - less frequently - one year.
  2. T-notes have maturities of two to 10 years.
  3. T-bonds have maturities of more than 10 years.

Interest income for all Treasury securities is exempt from state and local income taxes but is still subject to federal income tax.

The Buying Process
As a registered representative, you will be qualified to sell T-bills or T-notes. You buy them from theFederal Reserve, not directly from the U.S. Treasury via auction. You can identify your bid as:

    1. noncompetitive - agreeing to accept whatever rate is determined at auction; or
    2. competitive - specifying the rate you will accept at auction.
  • Bids
    • Bids for T-bills are stated in dollar terms rather than yield. For example, if you wanted an 11% annual yield on a $1,000 bill with a one-year maturity, you would make a competitive bid of "$900.90". (We'll explain the math later.)

    • T-notes, on the other hand, are fixed-dollar investments. You buy them for $1,000 each, redeem them for $1,000 each, and accept an interest payment every six months. If you wanted an 11% annual yield, you would bid "11%". We'll discuss later how such factors as the timing of the payments and the length of time to maturity affect how you compute interest payments.

      For T-bills, T-bonds and T-notes:
      • The maximum purchase for noncompetitive bids is $5 million.
      • The maximum for a competitive bid is 35% of offering amount.

  • Auction Frequency
    The frequency of auctions depends on the type of Treasury security:
    • T-bill auctions are held weekly

    • T-note auctions are held every month for two-year securities, every quarter for three- and 10-year securities, and eight times per year for five-year securities.

  • Treasuries in Your Client's Account
    • T-bills, T-notes and T-bonds are issued electronically into your or your client's account.

    • Your client can hold any of these securities until maturity or sell it prior to maturity at current market rate.

    • A bill or note or bond held until maturity can be reinvested into a similar security, but the U.S. Treasury will automatically redeem the bill or note and deposit its principal into your client's account unless otherwise notified.

    • You can use T-bills to diversify your client's investment portfolio or to participate in a secure, short-term investment. T-notes are generally used to finance education or supplement retirement income.
Treasury Bonds

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