What is a Treasury Bond?
A treasury bond is a debt instrument issued by the United States Treasury. The treasury raises money which can be used to run the United States Government by selling bonds and other financial securities, and it provides incentives to citizens to purchase such securities to ensure that it will have funds when it needs them. By purchasing a treasury bond, someone is essentially lending money to the government in exchange for fixed interest payments every six months. Once the bond matures, the holder receives its face value. Treasury bonds mature in a minimum of 10 years, with 10 year bonds being most common, although some mature in as much as 30 years. They are sold four times a year: in February, May, August, and October. Auctions of bonds are held by the Treasury, and individuals can also purchase bonds directly through the Treasury.
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.
– it is a piece of paper telling you that you are going to receive a fixed sum of US dollars at some designated point in the future. In the meantime you are going to receive interest, called a coupon, at a variable rate that depends on how the price of the bond fluctuates during the intervening years until redemption. Given the outlook for inflation, interest rates, the US economy and the US dollar, US bonds must rank among the least attractive investments on earth. Buyers or holders of US bonds at this point are making a number of erroneous and dangerous assumptions – including that interest rates and inflation will remain within reasonable bounds and that the US dollar will retain a reasonably high percentage of its value during the life of the bond. As we know the Fed has lowered short-term rates as an emergency measure, and immediately the crisis ends – and even if it doesn’t, it will raise them again. The official inflation statistics are highly misleading – real world inflation i
U.S. Treasury Bonds – not to be confused with savings bonds – are a type of long-term fixed-principal marketable security of 10 to 30 years. After purchase, interest payments are paid every six months until final maturity, when the principal is paid. The interest rate is determined at the time of auction. Minimum purchase is $100 with multiples sold in the same increment. The maximum amount for a noncompetitive purchase is $5 million in a single auction.
