Treasury refers to securities issued by the United States government, specifically the US Treasury Department, to finance its operations and projects. These bonds are considered extremely safe because they are guaranteed by the “full credit and confidence” of the United States government.
Here are the main types of US Treasury bonds:
1. Treasury Bills (T-Bills):
Term: Short term, usually 4, 13, 26 or 52 weeks.
Characteristics: Sold at a discount on the nominal value and does not pay periodic interest. The yield is the difference between the purchase price and the face value paid at maturity.
2. Treasury Notes (T-Notes):
Term: Medium term, generally 2, 3, 5, 7 or 10 years.
Features: Pay interest every six months and return the nominal value upon maturity.
3. Treasury Bonds (T-Bonds):
Term: Long term, generally 20 or 30 years.
Features: Pay interest every six months and return the nominal value upon maturity.
4. Treasury Inflation-Protected Securities (TIPS):
Term: 5, 10 or 30 years.
Characteristics: The principal adjusts according to inflation (measured by the Consumer Price Index – CPI). They pay semi-annual interest based on the inflation-adjusted principal. At maturity, they return the greater of the inflation-adjusted principal and the original face value.