The Abcs of us Treasury Bonds

Uncle Sam is generally considered the world’s most dependable borrower – the US government has yet to default on a loan. For this reason, US Treasury bonds are widely regarded as the safest of any bond investment, because both their principal and interest come with the backing of the “full faith and credit of the United States government.”

Given the minimal liquidity and credit risk associated with US Treasury bonds, they also typically have lower yields than similar bonds of the same maturity. Other bonds, such as the municipal, corporate, and mortgage-backed bonds, are all evaluated relative to US Treasury bonds.

The US government issues treasury bonds through the Bureau of the Public Dept. Treasury bonds are classified based on their maturities, as Treasury Bonds, Bills and Notes. Unlike Treasury Bills, Treasury Bonds and Notes are issued in minimum denominations of $1,000 or in multiples there-of, and they both pay out interest semi-annually.

Treasury Notes (T-Notes)
These debt securities have a maturity of two to ten years. The 10-year T-Note has become the benchmark used for determining interest rates.

Treasury Bonds (T-Bonds)
Treasury Bonds have a maturity of 10 to 30 years. They typically offer higher interest rates than the other two Treasurys. However, they also have a higher credit and inflation risk

Treasury Bills (T-Bills)
These have a maturity of one year or less, typically for 91 days, 182 days or 52 weeks. They are issued in denominations of $10,000, and with increments of $5,000. The interest offered on a T-Bills is calculated as the difference between the purchase price, and the T-Bill’s face value.