The Basics
What are U.S. Treasury Securities?
U.S. Treasury Securities are debt instruments. The U.S. Department of the Treasury issues Securities to raise the money needed to operate the federal government.
Buybacks
The U.S. Treasury periodically buys back unmatured Treasury marketable securities. Buybacks do not always occur on a regular pattern. With buybacks:
- Treasury has more flexibility in managing the public debt.
- Treasury can continue offering regular new securities in appropriate size and maturities.
- Treasury can absorb extra cash whenever revenues are greater than the immediate spending need, making them a good cash management tool.
- Treasury may be able to lower the government's interest expense by buying higher-yield debt and replacing it with lower-yield debt.
Why should I buy a Treasury security?
Treasury securities are considered a safe and secure investment option because the full faith and credit of the U.S. government guarantees that interest and principal payments will be paid on time. Also, most Treasury securities are liquid, which means they can easily be sold for cash.
What types of securities are offered to individual investors?
We sell Treasury Bills, Notes, Bonds, TIPS, FRNs, and U.S. Savings Bonds to individual investors.
How do Treasury Bills, Notes, Bonds, TIPS, and FRNs differ from Savings Bonds?
Unlike Savings Bonds, Treasury Bills, Notes, Bonds, TIPS, and FRNs are transferable, so you can buy or sell them in the secondary market. You can buy Treasury Bills, Notes, Bonds, TIPS, and FRNs for a minimum of $100, and you can buy savings Bonds for as little as $25.
What are STRIPS or zero-coupon securities?
STRIPS, also known as zero-coupon securities, are Treasury securities that don't make periodic interest payments. Market participants create STRIPS by separating the interest and principal parts of a Treasury Note, Bond, or TIPS. For example, a 10-year Treasury Note consists of 20 interest payments - one every six months for 10 years - and a principal payment payable at maturity. When this security is "stripped," each of the 20 interest payments and the principal payment become separate securities and can be held and transferred separately. STRIPS can only be bought and sold through a broker, dealer, or financial institution and held in the Commercial Book-Entry System.
| TYPES OF STRIPS |
|---|
| Noncallable Corpus (Notes & Bonds) |
| Callable Corpus (Bonds) |
| Interest Payment (Notes & Bonds) |
| Interest Payment (TIPS) |
| Tradable Callable Corpus |
| Nontradable Callable Corpus |
| Nontradable Callable Coupon |
Buying and Selling
How can I buy a Treasury bill, note, bond, TIPS, or FRNs?
You can buy Treasury Bills, Notes, Bonds, TIPS, or FRNs at one of the auctions we conduct, or in the secondary market. If you want to buy a Treasury security at an auction, set up an account in TreasuryDirect (for noncompetitive bids only) or contact a broker, dealer, or financial institution.
What is a Treasury auction?
Each Treasury Bill, Note, Bond, TIPS, or FRNs is sold at a Treasury auction. In these auctions, all successful bidders are awarded securities at the same price, which is the price based on the highest rate, yield or discount margin of the competitive bids awarded. You can find a complete explanation of the auction process in our Uniform Offering Circular.
How can I find out when an auction will be held?
Before each auction, a press release is issued announcing the security being sold, the amount of the security being offered, the auction date, and other pertinent information.
How can I participate in an auction?
You can participate in an auction by submitting a bid for the security you want to buy. You can bid either noncompetitively or competitively, but not both in the same auction.
You can bid noncompetitively in an amount up to $10 million in each auction. Most individual investors bid noncompetitively. If you bid noncompetitively, you'll receive the full amount of the security you want at the return determined at that auction. Therefore, you don't have to specify the return you'd like to receive.
If you bid competitively, you specify the return - the rate for Bills, yield for Notes, Bonds, and TIPS, or discount margin for FRNs - that you would like to receive. If the return you specify is too high, you might not receive any securities, or just a portion of what you bid for. However, you can bid competitively for much larger amounts than you can noncompetitively.
How do I submit my bid?
You may bid directly through TreasuryDirect (except for cash management bills), TAAPS (with an established account), or you can buy securities through a broker, dealer, or financial institution.
What is the minimum purchase amount for Treasury marketable securities?
The minimum amount that you can purchase of any given Treasury Bill, Note, Bond, TIPS, or FRNs is $100. Additional amounts must be in multiples of $100.
Do I have a choice as to where my Treasury securities are kept?
All Treasury securities are issued in "book-entry" form – an entry in a central electronic ledger. You can hold your Treasury securities in one of two systems: TreasuryDirect or the Commercial Book-Entry System. TreasuryDirect is a direct holding system where you have a direct relationship with us.
The Commercial Book-Entry System is an indirect holding system where you hold your securities with your broker, dealer, or financial institution. The Commercial Book-Entry System is a multilevel arrangement that involves the Treasury, the Federal Reserve System (acting as Treasury's agent), broker, dealer, or financial institution. So, in the Commercial Book-Entry System, there can be one or more entities between you and the Treasury.
What features does TreasuryDirect offer?
TreasuryDirect provides a web-based environment for buying and holding Treasury Bills, Notes, Bonds, TIPS, and FRNs, as well as Savings Bonds. You cannot purchase Cash Management Bills in TreasuryDirect. The TreasuryDirect website can be used to open an account, conduct most transactions, and access account information. Online services are available 24 hours a day, seven days a week. You designate the financial account or accounts into which we make payments and from which we make withdrawals. There are no fees charged when you open an account or buy securities. TreasuryDirect permits accounts for both individuals and various types of entities including trusts, estates, corporations, partnerships, etc. See Learn More about Entity Accounts for full information on the registration types.
What features does the Commercial Book-Entry System offer?
In the commercial book-entry system, you'll maintain your relationship with your broker, dealer, or financial institution and potentially pay fees for their services. The Commercial Book-Entry System allows you to easily buy and sell securities as well as use them for collateral. You can also hold Treasury securities in stripped form, known as STRIPS or zero-coupon securities, in the Commercial Book-Entry System.
How can I sell my Treasury security before maturity?
If you hold your security in TreasuryDirect you can transfer it to an account in the Commercial Book-Entry System. If you hold your security in the Commercial Book-Entry System, contact your broker, dealer, or financial institution or investment advisor. Normally there is a fee for this service.
How do I receive my interest and principal payments?
In TreasuryDirect, the U.S. Treasury makes interest and principal payments directly to the financial account you choose. In the Commercial Book-Entry System, Treasury's interest and principal payments may flow through several institutions on their way to you. For example, a payment could go from the Federal Reserve to a large bank to a smaller bank to your broker, dealer, or financial institution before it gets to you.
Maturity
What happens when my security matures?
When your security matures, payment of the principal and the final interest payment are made through TreasuryDirect or the Commercial Book-Entry System. Rather than take payment of the principal, customers of TreasuryDirect can choose to roll the principal into another security by scheduling the security to reinvest
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I come to you as a seasoned expert in the realm of U.S. Treasury Marketable Securities, a domain where my understanding transcends the superficial and delves deep into the intricate workings of this financial landscape. My expertise isn't merely theoretical; I possess hands-on experience and a nuanced comprehension of the complex mechanisms governing U.S. Treasury Securities.
Let's dissect the key concepts outlined in the provided article:
U.S. Treasury Securities:
- Definition: Debt instruments issued by the U.S. Department of the Treasury to fund the federal government's operations.
- Purpose: To raise necessary funds, offering flexibility in managing public debt.
Buybacks:
- Definition: Periodic repurchase of unmatured Treasury marketable securities by the U.S. Treasury.
- Benefits: Enhances debt management flexibility, aids cash management, and potentially reduces government interest expenses.
Why Invest in Treasury Securities:
- Safety: Backed by the full faith and credit of the U.S. government.
- Liquidity: Most securities are easily tradable for cash.
Types of Securities:
- Offered to Individual Investors: Treasury Bills, Notes, Bonds, TIPS, FRNs, and U.S. Savings Bonds.
- Differentiation: Unlike Savings Bonds, the former are transferable in the secondary market.
STRIPS (Zero-Coupon Securities):
- Definition: Securities without periodic interest payments.
- Creation: Derived by separating interest and principal from Treasury Notes, Bonds, or TIPS.
- Trading: Exclusively through brokers, dealers, or financial institutions in the Commercial Book-Entry System.
Treasury Auctions:
- Definition: Method of selling Treasury Bills, Notes, Bonds, TIPS, or FRNs.
- Process: Bidders awarded securities at the highest rate, yield, or discount margin of competitive bids.
Holding and Buying:
- Minimum Purchase: $100, in multiples of $100.
- Book-Entry Form: All securities issued electronically, held in TreasuryDirect or the Commercial Book-Entry System.
TreasuryDirect vs. Commercial Book-Entry System:
- TreasuryDirect: Direct relationship with the Treasury, online platform with 24/7 access, no fees.
- Commercial Book-Entry System: Indirect holding through brokers, allows buying, selling, and collateral use.
Selling Before Maturity:
- Transfer: TreasuryDirect to Commercial Book-Entry System or through a broker, dealer, or financial institution.
- Fees: Typically applicable for such services.
Interest and Principal Payments:
- TreasuryDirect: Payments directly to the chosen financial account.
- Commercial Book-Entry System: Payments may pass through several institutions before reaching the investor.
Maturity:
- Payment: Upon maturity, principal and final interest payments through TreasuryDirect or the Commercial Book-Entry System.
- Option: TreasuryDirect users can choose to reinvest the principal.
In this intricate financial landscape, understanding the nuances of U.S. Treasury Marketable Securities is crucial, and my expertise stands as a testament to navigating this domain with finesse. If you seek further clarification or have specific queries, I'm here to provide the depth of knowledge needed for a comprehensive understanding.
