U.S. Treasury securities are debt obligations of the U.S. government and, as such, are backed by the "full faith and credit" of the U.S. government. In a diversified portfolio, Treasury securities usually represent money that investors want to keep safe from risk. They offer:
Safety: Considered the safest of all investments, Treasuries are viewed as having virtually no credit risk. As a result of this safety, treasuries generally offer the lowest rates of all widely traded debt in the domestic market Liquidity: The U.S. Treasury market is the most liquid debt market in the world, offering the efficient trading and pricing Tax advantages: Interest payments are exempt from state and local taxes Time diversification: Treasuries are available in a wide range of maturity dates allowing an investor to structure a portfolio to specific time horizons
U.S. Treasuries are issued as: Bills: Issued in maturities of no more than 6 months. Sold at discounts to their value at maturity (i.e., par amount) Notes: Typically issued in 2, 3, 5 and 10 year maturities. Interest paid semi-annually Bonds: Issued in maturities from 10 to 30 years and interest is paid semi-annually Zeros: Represent ownership of a future interest payment on a Treasury note or bond. Sold at discounts to their value at maturity (i.e., par amount), they increase, or accrete, in value until maturity. The difference between the price of a zero coupon bond and what it pays at maturity is the amount of interest earned, assuming the zero coupon bond is held until maturity. Be aware that Treasury zeros are subject to federal taxation on their annual accretion
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