Ever wondered what treasury securities are? What about the difference between a treasury note, a treasury bond, and a treasury bill? Let’s uncover what these securities are so that you can have a sense of how they function and how they work for an investor.
What Are Treasury Securities Used For?
Treasury securities are basically debt products used to pay for public projects such as building schools and highways.[1] Treasury securities function similarly to loans–you loan the government some amount of money, and the government promises to pay back that money and some additional money (an interest rate).[1]
The interest rates attached to bonds are a form of potential financial return and are a primary reason why people purchase them. But let’s discuss more on how treasury securities really work.
The Inner Workings of a Treasury Security
These securities have what is called “face values” or “par values.” Both of these terms mean the same thing. They are the amount the government promises to the owner of the bond at the maturity date.[1] So, for example, if you have a bond with a face value of $50, that bond will be paid $50 at the time of maturity. Think of it as a floor price. If you purchased that bond at $100 and tried to sell it, it couldn’t be sold for less than $50.
In addition, because the US Government backs these kinds of securities, they are commonly considered relatively safe investment options.[2] The US has never defaulted (been unable to pay) on its Treasury security debts, so many have confidence that if they own a US treasury bond, they will get the amount listed on the face value if they wait until the bond is mature.[2]
Treasuries as an Investment
So, given that these kinds of investments may carry relatively little risk to other securities investments, why doesn’t everyone just invest in these kinds of securities? The answer is that these kinds of investments often yield lower returns than more high-risk options, since lower risk is often correlated to lower returns.[2] So you’ll have to consider that if you are interested in investing in these kinds of securities, they don’t fit every portfolio or financial situation.
The Three Treasury Securities
There are three types of Treasury securities, and their main difference is their maturation length (though there are other differences between them as well, such as interest rate levels):
- Treasury bonds (sometimes called T-Bonds) mature after 20 or 30 years
- Treasury notes (sometimes called T-notes) have maturation periods of 2, 3, 5, 7, or 10 years
- Treasury bills (sometimes called T-bills) have a maturation period of anything less than 2 years [2]
When it comes to portfolio design, there are many options to consider, like both high-risk and low-risk and long-term and short-term. And all of these options come with different considerations and are impacted by different financial factors.
If you are looking for someone to help guide you through the myriad of options available to you for investment, consider reaching out to one of our professionals for a complimentary review of your financial situation.
[1] https://www.investopedia.com/terms/t/treasurybill.asp
[2] https://www.cnbc.com/select/should-you-invest-in-treasury-bonds/
This article is intended for educational purposes only and is not intended to serve as the basis for any purchasing decision.
Because investor situations and objectives vary this information is not intended to indicate that an investment is appropriate for or is being recommended to any individual investor.
This is for informational purposes only, does not constitute individual investment advice, and should not be relied upon as tax or legal advice. Please consult the appropriate professional regarding your individual circumstance.
Treasury securities may earn periodic interest until maturity, at which point the owner is also paid a par amount equal to the principal. Treasury securities are subject to inflation, interest rate risk, opportunity cost risk, and risk of default by the United States Department of the Treasury.
Advisory Services offered through Asset Strategy Advisors, LLC (ASA), a SEC Registered Investment Advisor. Securities offered through Concorde Investment Services, LLC. (CIS), member FINRA/SIPC. Insurance Services offered through Asset Strategy Financial Group, Inc. (ASFG)”. ASA, CIS and ASFG are separate companies.
