What are Treasuries?
Treasuries are the common name for the United States Treasury securities. These are government debt instruments issued to finance the national debt of the US, the equivalent of British gilts or German bunds.
US Treasuries are considered one of the most stable and safe assets in the world, as they have remained as a safe profit haven throughout wars, recessions and several financial crises. As long as it holds the bonds until maturity, the US government will unconditionally back the Treasuries, guaranteeing the return.
Types of Treasuries:
There are four types of Treasuries, depending on the lengths of their maturities:
Treasury bills (T-Bills): shortest length of maturity, ranging between four and 52 weeks. As it occurs with the zero-coupon bonds, there is no interest paid prior to maturity. In order to create a positive yield, they are sold at a discount of the par value, hence generating a profit for the holder.
The general calculation for the discount yield of T-Bills is as follows:
Discount yield (%) = [(face value – purchase price)/purchase value]*(360/days till maturity)*100%
Treasury notes (T-Notes): medium range of maturities, ranging between one and ten years. These Treasuries are available with either a competitive bid (investors specify their desired yield) or non-competitive bid (investors accepts the yield determined by auction). The minimum price for a T-Note is $1,000 and its payments are made semi-annually.
Treasury bonds (T-Bonds): long-term, with a maturity equal to or over ten years. As with the T-Notes, the minimum price is $1,000 and payments are made semi-annually.
Treasury inflation-protected securities (TIPS): bonds adjusted to the Consumer Price Index (CPI), which is the main measure of inflation. Tips are offered in five, ten and 30-year maturities.
Category: Financial Glossary