TREASURY BONDS-WHAT ARE TREASURY BONDS AND HOW TO THEY WORK?

A treasury bond is a marketable debt security which has a fixed interest having a maturity of not treasury less than 10years.The type of bond is issued by the U.S government to serve as a credit security for funding government initiatives. Treasury bonds create interest earnings semiannually.The returns that investor’s make is only taxed at federal level.

Treasury bonds are hand out with a minimum value of$ 1000.These bonds are initially traded through the auction method of selling. There is always a maximum that investors are supposed to purchase according to the proposal made. The maximum bids one can buy $5 million if the bid is non-competitive and35% when the bid is competitive. The term competitive bid states the price at which the bidder or buyer is willing to agree to take, and it is accepted reliant to how it relates to the rate set of the bond. While non-competitive bid gives an assurance that the bidder will acquire the bond, but he/she is expected to agree with the fixed rate. When the auctioning of the bonds is done, the bonds are allowed to be sold in the secondary bond markets.

For bond investors who give attention to media monetary news will always have to hear of three terms commonly used, which relate to treasury bonds. These terms may be confusion to you if you do not understand what they mean. The three terms are Treasury bills, Treasury notes and Treasury bonds. The three terms are closely related and are all issued by the U.S government in funding its credits.

The main differences between these treasuries are the maturity periods and the manner in which they make returns of interest.

Treasury bills-these is short term bonds that ripen in one year since the time it was issued. They are traded with maturities of four that is in 4, 13, 26and the 52 weeks respectively. The bills are sold once a week in the first three weeks of maturity when in the last week the 52 week the bills are auctioned every four weeks. Treasury bill has a short maturity meaning that the returns are lesser than in treasury bonds.

Treasury notes-Treasury notes have a longer maturity period compared to treasury bills. They are given out with the ripeness of one, three, five, seven and ten years in that order. Just like treasury bonds treasury notes are long term although their maturity period is shorter than in treasury bonds.Treasury bonds are issued at the maturity of20 and30 years. These two are almost the same; the only slight difference is the length of their maturity.

Treasury bonds are not a good long-term investment

These bonds are significantly affected by inflation. The inflation risk on the bonds is too high making them unfavorable for long-term investments and best retirement investments. The reason is that investors who save on long-term bonds have the right to make enormous returns. Thus, no need to risk their money with treasury bonds due to inflation risks that may result.

For investors looking forward to making huge profits, should look elsewhere treasury bonds, since there are many safe saving bonds that give better rates of returns.