are government bonds issued by the United States Department
of the Treasury through the Bureau of the Public Debt. They
are the debt financing instruments of the U.S. Federal government,
and they are often referred to simply as Treasuries
or Treasurys. There are four types of marketable
treasury securities: Treasury bills, Treasury notes, Treasury
bonds, and Treasury Inflation Protected Securities (TIPS)
are several types of non-marketable treasury securities
including State and Local Government Series (SLGS), Government
Account Series debt issued to government-managed trust funds,
and Savings bonds. All of the marketable Treasury securities
are very liquid and are heavily traded on the secondary
market. The non-marketable securities (such as savings bonds)
are issued to subscribers and cannot be transferred through
issued by the US Government -- Treasury
bills (or T-bills) mature in one year or less. Like
zero-coupon bonds, they do not pay interest prior to maturity;
instead they are sold at a discount of the par value to create
a positive yield to maturity. Many regard Treasury bills as the
least risky investment available to U.S. investors.
T-Bills are commonly issued with maturity dates of 91 days (or
13 weeks, about 3 months), and 182 days (or 26 weeks, about 6
months). Treasury Bills are sold by single price auctions held
weekly. Offering amounts for 13-week and 26-week bills are announced
each Thursday for auction at 1:00 pm on the following Monday and
settlement, or issuance, on Thursday. Offering amounts for 4-week
bills are announced on Monday for auction the next day, Tuesday,
at 1:00 pm and issuance on Thursday. Purchase orders at TreasuryDirect
must be entered before 11:30 on the Monday of the auction. The
minimum purchase amount is $1,000. (This amount formerly had been
$10,000.) Mature T-bills are also redeemed on each Thursday. Banks
and financial institutions, especially primary dealers, are the
largest purchasers of T-Bills.
securities, individual issues of T-bills are identified with a
unique CUSIP number. The 13-week bill issued three months after
a 26-week bill is considered a re-opening of the 26-week bill
and is given the same CUSIP number. The 4-week bill issued two
months after that and maturing on the same day is also considered
a re-opening of the 26-week bill and shares the same CUSIP number.
For example, the 26-week bill issued on March 22, 2007 and maturing
on September 20, 2007 has the same CUSIP number (912795A27) as
the 13-week bill issued on June 21, 2007 and maturing on September
20, 2007, and as the 4-week bill issued on August 23, 2007 that
matures on September 20, 2007.
when Treasury cash balances are particularly low, the Treasury
may sell cash management bills (or CMBs). These are sold
at a discount and by auction just like weekly Treasury bills.
They differ in that they are irregular in amount, term (often
less than 21 days), and day of the week for auction, issuance,
and maturity. When CMBs mature on the same day as a regular weekly
bill, usually Thursday, they are said to be on-cycle. The
CMB is considered another reopening of the bill and has the same
CUSIP. When CMBs mature on any other day, they are off-cycle
and have a different CUSIP number.
are quoted for purchase and sale in the secondary market on an
annualized percentage yield to maturity, or basis.
With the advent
of TreasuryDirect, individuals can now purchase T-Bills online
and have funds withdrawn and deposited directly to their personal
bank account and earn higher interest rates on their savings.
for yield on Treasury bills is
notes (or T-Notes) mature in two to ten years. They
have a coupon payment every six months, and are commonly issued
with maturities dates of 2, 5 or 10 years, for denominations from
$1,000 to $1,000,000.
T-Bonds are quoted on the secondary market at percentage of par
in thirty-seconds of a point. Thus, for example, a quote of 95:07
on a note indicates that it is trading at a discount: $952.19
(i.e. 95 7/32%) for a $1,000 bond. (Several different notations
may be used for bond price quotes. The example of 95 and 7/32
points may be written as 95:07, or 95-07, or 95'07, or decimalized
as 95.21875.) Other notation includes a +, which indicates 1/64
points and a third digit may be specified to represent 1/256 points.
Examples include 95:07+ which equates to (95 + 7/32 + 1/64) and
95:073 which equates to (95 + 7/32 + 3/256). Notation such as
95:073+ is unusual and not typically used.
Treasury note has become the security most frequently quoted when
discussing the performance of the U.S. government-bond market
and is used to convey the market's take on longer-term macroeconomic
bonds (T-Bonds, or the long bond) have the longest
maturity, from ten years to thirty years. They have coupon payment
every six months like T-Notes, and are commonly issued with maturity
of thirty years. The secondary market is highly liquid, so the
yield on the most recent T-Bond offering was commonly used as
a proxy for long-term interest rates in general. This role has
largely been taken over by the 10-year note, as the size and frequency
of long-term bond issues declined significantly in the 1990s and
The U.S. Federal
government stopped issuing the well-known 30-year Treasury bonds
(often called long-bonds) on October 31, 2001. As the U.S. government
used its budget surpluses to pay down the Federal debt in the
late 1990s, the 10-year Treasury note began to replace the 30-year
Treasury bond as the general, most-followed metric of the U.S.
bond market. However, due to demand from pension funds and large,
long-term institutional investors, along with a need to diversify
the Treasury's liabilities - and also because the flatter yield
curve meant that the opportunity cost of selling long-dated debt
had dropped - the 30-year Treasury bond was re-introduced in February
2006 and is now issued quarterly. This will bring the U.S. in
line with Japan and European governments issuing longer-dated
maturities amid growing global demand from pension funds. Some
countries, including France and the United Kingdom, have begun
offering a 50-year bond, known as a Methuselah.
Inflation-Protected Securities (or TIPS) are the inflation-indexed
bonds issued by the U.S. Treasury. These securities were first
issued in 1997. The principal is adjusted to the Consumer Price
Index, the commonly used measure of inflation. The coupon rate
is constant, but generates a different amount of interest when
multiplied by the inflation-adjusted principal, thus protecting
the holder against inflation. TIPS are currently offered in 5-year,
7-year, 10-year and 20-year maturities. 30-year TIPS are no longer
to their value for a borrower who desires protection against inflation,
TIPS can also be a useful information source for policy makers:
the interest-rate differential between TIPS and conventional US
Treasury bonds is what borrowers are willing to give up in order
to avoid inflation risk. Therefore, changes in this differential
are usually taken to indicate that market expectations about inflation
over the term of the bonds have changed. (Also see inflation derivatives).
payments from these securities are taxed for federal income tax
purposes in the year payments are received (payments are semi-annual,
or every six months). The inflation adjustment credited to the
bonds is also taxable each year. This tax treatment means that
even though these bonds are intended to protect the holder from
inflation, the cash flows generated by the bonds are actually
inversely related to inflation until the bond matures. For example,
during a period of no inflation, the cash flows will be exactly
the same as for a normal bond, and the holder will receive the
coupon payment minus the taxes on the coupon payment. During a
period of high inflation, the holder will receive the same equivalent
cash flow (in purchasing power terms), and will then have to pay
additional taxes on the inflation adjusted principal. The details
of this tax treatment can have unexpected repercussions. (See
tax on the inflation tax.)
by the Financial Industry
Trading of Registered Interest and Principal Securities (or
STRIPS) are T-Notes,
T-Bonds and TIPS whose interest and principal portions of the
security have been separated, or "stripped"; these may then be
sold separately (in units of $1000 face value) in the secondary
market. The name derives from the notional practice of literally
tearing the interest coupons off (paper) securities.
does not directly issue STRIPS; they are formed by investment
banks or brokerage firms, but the government does register STRIPS
in its book-entry system. They cannot be bought through TreasuryDirect,
but only through a broker.
bonds are treasury securities for individual investors. US
Savings Bonds are a registered, non-callable bond issued by the
U.S. Government, and are backed by its full faith and credit.
About one in six Americans - more than 50 million individuals
- have together invested more than $200 billion in savings bonds.
However, all savings bond investments together cover only a minor
portion - less than 3% - of the U.S. public debt.
have traditionally been issued as paper, or definitive, bonds.
In October 2002 the treasury also began to offer electronic, or
book, savings bonds through its online service TreasuryDirect.
As of 2004, about a quarter of new savings bond investments are
now made electronically.
There is no
active secondary market for Savings Bonds (but they can be transferred
if the taxes due on the accrued interest are paid). After a one-year
holding period they can be redeemed with the Treasury at any time,
making them very liquid. Since they are registered securities,
possession of a savings bond is of no legal consequence; ownership
is determined by the names in the Treasury's records, which are
also printed on paper savings bonds. Consequently, savings bonds
can be replaced if lost or destroyed.
do not have coupons. Interest payments are compounded or accrued,
which means they are added to the value of the bond and paid out
only upon the bond's redemption. Unlike other treasury securities,
income from these interest payments does not have to be reported
to the IRS as income until the bonds are cashed, which makes savings
bonds tax-deferred investments. Savings bonds redeemed prior to
five years forfeit the most recent three months' interest.
first offered the predecessor to savings bonds, called "baby bonds,"
in March, 1935. The bonds were issued in denominations from $25
to $1,000. They were sold at 75 percent of face value, and accrued
interest at the rate of 2.9% per year, compounded semiannually
when held for their ten-year maturity period.
savings bonds were introduced in 1980 to replace the series E
bond. Paper EE bonds are sold at a 50 percent discount to their
face value (from $50 to $10,000), and are guaranteed to be worth
at least face value at "original maturity", which varies from
8 years to (presently) 20 years depending on issue date. Electronic
EE bonds sold through TreasuryDirect are sold at face value ($25
and up); however, they are guaranteed to be worth at least double
their face value at original maturity, so the difference is nominal.
EE Bond interest rates vary depending on issue date, and for older
bonds, yields on other Treasury securities. In May 2005, EE bonds
were assigned a fixed rate at the time of purchase. The rate is
currently 3.0% (as of January 2008). Series EE bonds issued in
May 1997 or later earn interest every month, compounded twice
per year, until they reach "final maturity" after 30 years; earlier
EE bonds vary in interest accrual, but have the same 30-year final
maturity. The interest on series EE bonds purchased since 1989
is exempt from federal and state taxes if it is used for education
expenses, so long as the expenses are incurred in the same year
as the bonds are redeemed. A buyer should beware though that there
are very specific requirements for the bonds to be tax free and
thus should consult the tax code before purchasing as college
savings bonds originally sold in denominations from $500 to $10,000.
Series E and EE savings bonds were able to be exchanged for them.
The Series HH bonds pay interest semiannually and mature in twenty
years. Series H Bonds mature in 30 years. Federal income tax on
these bonds can be deferred until the bonds are sold or mature.
These bonds have not been available for purchase from the treasury,
or via exchange of other bonds, since September 1, 2004. 
Series I Bonds
were introduced in September 1998. They are sold at face value
($50 to $10,000 for paper bonds, $25 and up for electronic bonds)
and grow in value with inflation-indexed earnings (similar to
TIPS) for up to 30 years. I Bonds gain interest once a month,
with interest being compounded twice per year. The composite interest
rate has two components: a guaranteed fixed rate, which does not
change over the 30 year period; and a semiannual inflation rate,
which is adjusted twice per year. Even in times of deflation,
the composite interest rate is guaranteed never to go below zero,
meaning an I Bond's redemption value can never go down. The significant
differences between series I bonds and TIPS are that I bonds retain
all interest to compound inside the bond, are tax-deferred, and
are protected from loss of value, while TIPS pay out a semiannual
coupon, have a somewhat complex tax treatment, can lose value,
and generally have a higher fixed rate.
10, 2001, Series EE savings bonds purchased directly through financial
institutions have been printed with the words "Patriot Bond" on
them. Otherwise, the Patriot bond looks the same as the Series
EE Bond, and Patriot bonds are used for financing general government
debt, and not earmarked for any specific purpose. Bonds purchased
from employers are not inscribed with the Patriot bond notation.
Certificate of Indebtedness
of Indebtedness" is a Treasury security that does not earn any
interest and has no fixed maturity. It can only be held in a TreasuryDirect
account and bought or sold directly though the Treasury. Purchases
and redemptions can be made at any time by transfers to or from
a bank checking account, or by direct deposit of salary via payroll
deduction. It is a place to store proceeds of coupon payments,
matured securities, and small contributions until the time when
the account holder is willing and able to buy a marketable Treasury
security or a savings bond (for instance, to save up small amounts
until the minimum purchase is reached). Many TreasuryDirect users
have interest-bearing checking accounts and use them as their
temporary holding place, but the C-of-I is more convenient in
cases where the checking account does not earn interest.
If you want
to reinvest a maturing TreasuryDirect T-Bill security, you should
specify that the maturing value be placed in your C-of-I account.
Then you can buy a new T-Bill that uses most of that money - the
remainder can be transferred to a bank account. The redemption
and the repurchase will occur on the same Thursday.
- Legacy TreasuryDirect:
- Electronic Services for Legacy TreasuryDirect Treasury Bills, Notes
- Bureau of the Public Debt : US Savings Bonds Online
- Major Foreign Holders of
- Bureau of
the Public Debt: Series A, B, C, D, E, F, G, H, J, and K Savings
Bonds and Savings Notes.
- Features and Risks of Treasury Inflation Protection Securities
- All About TIPS