Essential Guide To Investing In Treasury Securities
You may have
heard that investing in treasury securities is the baseline for
investments that have no risk. These kinds of terms can often seem
confusing to the novice investor, so in this article we will give you
the lowdown on treasury security investing. You will need to know what
treasury securities are and what kind of returns to expect before you
invest your hard earned money.
States government needs to finance its debt and one way that it does
this is by the Treasury Department issuing securities. Most of the
time treasury securities get sold to those that bid the highest at
auction which provides the government with the best return. But you
will also find treasury securities available on the secondary market.
securities are one of the safest forms of investment and some experts
consider them to be zero risk. The reason for this is that they have
the stability factor of the U.S. government as their foundation, and
the chances of the government collapsing are incredibly slim to none.
to make money Investing in Treasury Securities
The first thing
that you need to know is what these securities are and how they work.
Did you know that there are 4 different types of treasury security?
Well there are and here is an overview of them all:
Also known as
T-bills, these will mature in 12 months or less. These are your
baseline investments considered risk free. T-bills will often have
maturity periods of 182 days, 91 days or 28 days.
are not interest paying. You will buy them at a discounted rate, and
you will earn money when you sell them after their maturity date. Use
an annualized return for calculating the return on investment of these
securities. You have to take into consideration what you have paid for
the treasury bill, what its value is when it matures and the maturity
Also known as
T-notes, these will mature between 2 and 10 years. They work the same
way as T-bills in that you purchase them at a discounted rate from
their value at maturity. But there is a difference – every half year
T-notes pay out 50% of their “coupon rate”. This will have
investors paying over the odds for these treasury securities.
how this works let’s consider a ten year T-note that has a value of
$10,000. It comes that has a coupon rate of 4.25%. As the holder of
this t-note you will get $217.50 from the government every six months.
After maturity you can redeem your T-note for $10,000.
The market will
normally dictate the price of these bonds. You will be able to
purchase T-notes below their face value at certain times and have to
pay over face value at other times. Consider an example where you
purchase a five year, $5,000 face value T-note with a coupon rate of
4.625% at a cost of $9,965.
receive half yearly payments of $231.25 and then when redeemed the
T-note for $10,000 you will have made a total return of $2,347.17
which gives an annual investment return of 4.71%.
Also known as
T-bonds, they work the same way as T-notes do but are for periods of
over 10 years and up to 30 years. Like the T-notes there are half
yearly coupon payments and when the T-bonds mature you will get the
face value amount back for them.
A lot of people
buy these as gifts for younger people so that they will have a regular
coupon payments income and the redemption bonus at maturity. They are
also a popular acquisition with long term trusts. If you have a lot of
money to invest then T-bonds are worthy of consideration.
You may already
be familiar with savings bonds as a form of treasury security. After
you purchase a savings bond interest will begin to accrue, but this is
not payable to you until the bond is ready for redemption.
After 12 months
it is possible to redeem a savings bond. The interest rates are quite
low but they do compound. So it is best to hold onto your savings
bonds for as long as you can to make the most interest. This is
different to all of the other kinds of treasury securities.
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