Treasury Bond - T-Bond

Loading the player...

What is a 'Treasury Bond - T-Bond'

A Treasury bond (T-Bond) is a marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest payments semi-annually, and the income received is only taxed at the federal level. Treasury bonds are known in the market as primarily risk-free; they are issued by the U.S. government with very little risk of default.

BREAKING DOWN 'Treasury Bond - T-Bond'

Treasury bonds are one of four types of debt issued by the U.S. Department of the Treasury to finance the government’s spending activities. The four types of debt are Treasury bills, Treasury notes, Treasury bonds and Treasury Inflation-Protected Securities (TIPS). The securities vary by maturity and coupon payments. All of them are considered benchmarks to their comparable fixed-income categories since they are virtually risk-free, backed by the U.S. government, which can raise taxes and increase revenue to ensure full payments. These investments are also considered benchmarks in their respective fixed-income categories as they offer a base risk-free rate of investment with the categories' lowest return.

Maturity Ranges

Treasury bonds are issued with maturities that can range from 10 to 30 years. They are issued with a minimum denomination of $1,000, and coupon payments on the bonds are paid semi-annually. The bonds are initially sold through auction in which the maximum purchase amount is $5 million if the bid is noncompetitive or 35% of the offering if the bid is competitive. A competitive bid states the rate the bidder is willing to accept; it is accepted depending on how it compares to the set rate of the bond. A noncompetitive bid ensures the bidder gets the bond but he has to accept the set rate. After the auction, the bonds can be sold in the secondary market.

There is an active secondary market for Treasury bonds, making the investments highly liquid. The secondary market also makes the price of Treasury bonds fluctuate considerably on the trading market. As such, current auction and yield rates of Treasury bonds dictate their pricing levels on the secondary market. Similar to other types of bonds, Treasury bonds on the secondary market see prices go down when auction rates increase, as the value of the bond’s future cash flows is discounted at the higher rate. Inversely, when prices increase, auction rate yields decrease.

In the fixed-income market, Treasury bond yields help to form the yield curve, which includes the full range of investments offered by the U.S. government. The yield curve diagrams yields by maturity and is most often upward sloping, with lower maturities offering lower rates than longer-dated maturities. However, when longer maturities are in high demand, the yield curve can be inverted, which shows longer maturities with rates lower than shorter-term maturities.

RELATED TERMS
  1. Long Bond

    The 30-year U.S. Treasury Bond. The long bond is so called because ...
  2. Treasury Note

    A marketable U.S. government debt security with a fixed interest ...
  3. Treasury Direct

    The online market where investors can purchase federal government ...
  4. Government Security

    A bond (or debt obligation) issued by a government authority, ...
  5. Bond

    A debt investment in which an investor loans money to an entity ...
  6. Spot Rate Treasury Curve

    A yield curve constructed using Treasury spot rates rather than ...
Related Articles
  1. Markets

    Introduction to Treasury Securities

    Purchasing bonds that are backed by the full faith and credit of the U.S. government can provide steady guaranteed income and peace of mind. Knowing the characteristics of each type of treasury ...
  2. Markets

    What's a T Bond?

    Treasury bonds, or T-bonds, are marketable securities issued by the US government, and are available in increments of $100. Bonds have a maturity range of ten to 30 years, with 30 being the most ...
  3. Managing Wealth

    Find The Right Bond At The Right Time

    Find out which bonds you should be investing in and when you should be buying them.
  4. Managing Wealth

    How Bond Market Pricing Works

    Learn the basic rules that govern how bond prices are determined.
  5. Markets

    Buy Treasuries Directly From The Fed

    If you want government securities, go straight to the source. We'll show you how.
  6. Managing Wealth

    How To Evaluate Bond Performance

    Learn about how investors should evaluate bond performance. See how the maturity of a bond can impact its exposure to interest rate risk.
  7. Markets

    Bond Basics: Different Types Of Bonds

    Government Bonds In general, fixed-income securities are classified according to the length of time before maturity. These are the three main categories: Bills - debt securities maturing in less ...
  8. Markets

    Understanding Treasury Yield

    Treasury yield refers to the return on an investment in a U.S. government debt obligation, such as a bill, note or bond.
  9. Personal Finance

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  10. ETFs & Mutual Funds

    Top 4 Treasurys ETFs (SHY, IEI)

    Learn about the specifics of the top four U.S. Treasury ETFs and how investors can buy ETFs that invest in bonds along the yield curve.
RELATED FAQS
  1. What are the maturity terms for Treasury bonds?

    Learn how treasury bonds pay interest, when they reach maturity and the differences between terms for treasury bonds and ... Read Answer >>
  2. Will speculators buy or sell Treasury bond futures contracts if they expect interest ...

  3. Why are treasury bond yields important to investors of other securities?

    Learn about the wide-ranging impact of U.S. Treasury Bond yields on all other interest-bearing instruments in the economy ... Read Answer >>
  4. What is the difference between the Daily Treasury Long-Term Rates and the Daily Treasury ...

    Find out more about the daily Treasury long-term rates, daily Treasury yield curve rates and the difference between these ... Read Answer >>
  5. What forms of debt security are available for the average investor?

    Discover the various different types of debt securities, issued by government entities or corporations, that are available ... Read Answer >>
  6. How is the interest rate on a treasury bond determined?

    Explore the difference between interest rates and bond coupons, what determines current yield on debt instruments, and why ... Read Answer >>
Hot Definitions
  1. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  2. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  3. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  4. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  5. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  6. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
Trading Center