US Capital Markets

Treasury Bills – T-Bills

T-Bills are government bonds that are issued for a period of up to a year. T-Bills do not carry interest. They are sold to the public at a price lower than their par value. The investor profit from the difference between the price they buy them at and the par value which is returned at maturity.

T-Bills are issued for periods ranging from a few days to 26 weeks.  Their par value is generally 1,000 dollars.

T-Bills are a form of short-term investment, and they are a secure and efficient alternative to short-term bank deposits.

Treasury Notes – T-Notes

T-Notes are government bonds issued for periods between a year and ten years.  They are generally issued for 2, 3, 5 or 10 years.  Interest on T-Notes is paid twice a year.

Treasury Bonds – T-Bonds

T-Bonds are government bonds that are issued for more than ten years.  Between October, 2001 and February, 2006, these bonds were not issued.  There is an extensive secondary market where these bonds, mostly 30-year bonds, are traded.

 

Special Government Bonds

In addition to the bonds listed, there are two other government bonds issued by the US treasury.

  1. TIPS.
  2. STRIPS.

TIPS – Treasury Inflation Protected Securities

Beginning in 1997, the US treasury began issuing bonds that were linked to the CPI.  These bonds are meant to protect investors from inflation.  Today, TIPS are issued for period of 5, 10 and 20 years.

The link to the CPI affects both the principal and the interest, as will be described in the following example.

An investor purchases a 10 year, $1,000 TIPS which carries an interest rate of 5%.  Over the course of the first six months after purchase, the CPI rises by 3%.  Accordingly, the par value of the bond is adjusted to $1,030.  The first interest payment is calculated as 5% of the adjusted par value of $1,030.  This process continues until the bond is redeemed.  At maturity, the par value, adjusted for inflation is returned.

Because the affect of inflation is neutralized, the return on TIPS is less than the return on equivalent Treasuries.

Treasury Bills – T-Bills566 Treasury Bills – T-Bills