What Is It?
Also known as "government securities", treasuries are a debt obligation of a national government. Because they are backed by the credit and taxing power of a country, they are regarded as having little or no risk of default.

Treasuries include short-term Treasury bills (T-bills), medium-term Treasury notes and long-term Treasury bonds (T-bonds). One major advantage of treasuries is that they are exempt from state and municipal taxes - this is especially important in states with high income tax rates.

Treasury Bills - A U.S. government debt security with a maturity of less than one year. T-bills do not pay a fixed interest rate. They are issued through a competitive bidding process at a discount from par.

Treasury Notes - A marketable, fixed-interest rate U.S. government debt security with a maturity between one and 10 years.

Treasury Bonds - A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds are usually issued with a minimum denomination of $1,000.

Objectives and Risks
Treasuries are mainly used as safe havens for investors, especially when the markets head south. The fact that these debt instruments offer very little risk of default means the interest rate investors receive is relatively low. The price of treasuries rises as interest rates fall, and the opposite is true when interest rates rise. Therefore, the best time to buy treasuries is when interest rates are relatively high.

How To Buy or Sell It
Treasuries can be bought through various discount and full service brokers. Bond brokers also allow you to buy and sell treasuries. Perhaps the best way for individuals to buy or sell treasuries is through the U.S. Treasury's "Treasury Direct" program, which provides transactions for little or no fees.




Strengths
  • Treasuries are considered to be almost risk free.
  • Their low risk makes it fairly easy to borrow against the bonds.
  • The U.S. treasury market is among the most active in the world, thus lack of liquidity is not a concern.

  • Weaknesses
  • Compared to other debt instruments, rates of return for treasuries are not that great.

  • Three Main Uses
  • Provides Income
  • Liquidity
  • Tax Exemption

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