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. Treasury Yield

    The return on investment, expressed as a percentage, on the debt ...
  6. 30-Year Treasury

    A U.S. Treasury debt obligation that has a maturity of 30 years. ...
Related Articles
  1. Investing

    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. Investing

    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. Investing

    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. Investing

    Buy Treasuries Directly From The Fed

    If you want government securities, go straight to the source. We'll show you how.
  5. Investing

    The Importance Of U.S. Treasury Rates

    U.S. Treasury bond interest rates affect more than just bondholders! It impacts the day to day lives of all consumers.
  6. Investing

    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.
  7. Investing

    How Bond Market Pricing Works

    Learn the basic rules that govern how bond prices are determined.
  8. Financial Advisor

    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.
  9. Investing

    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.
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. 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 >>
  3. 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 >>
  4. 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 >>
  5. Why is my bond worth less than face value?

    Find out how bonds can be issued or traded for less than their listed face values, and learn what causes bond prices to fluctuate ... Read Answer >>
Hot Definitions
  1. Dividend Yield

    A financial ratio that shows how much a company pays out in dividends each year relative to its share price.
  2. Fixed-Income Security

    An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. ...
  3. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  4. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  5. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  6. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
Trading Center