US Government Securities
In today’s uncertain investment environment, U.S. Treasuries Securities offer a safe, secure, government-guaranteed option for investors worried about the impact of the recent economic downturn on their savings.
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The federal government issues securities to raise funds and help pay off its debt. The U.S. government guarantees that interest and principal payments will be paid on time, making U.S. government securities a source of dependable cash flow.
Government debt securities can be owned directly as with savings bonds or they can be owned indirectly as with marketable Treasury securities.
Marketable Treasury Securities
Marketable treasury securities are a form of government debt that are traded on public markets or purchased directly from the government. There are several types of debt securities that vary based on the length of maturity and in the way that they credit interest.
Treasury Bills
Treasury bills (T-Bills) have short term maturities of 52 weeks or less and are sold at a discount from their face value. The discount represents the total interest paid on the T-Bill at the time of maturity.
Treasury Notes and Treasury Bonds
Treasury notes are considered to be medium term debt securities with maturities between two and 10 years. Treasury bonds mature in 30 years. Both of these debt securities have a fixed yield that pays interest semi annually.
Treasury Inflation-Protected Securities (TIPS)
TIPS have maturities of 5, 10 and 20 years and are similar to T-Notes and T-Bonds in that they are assigned a fixed yield based on a face value, and they pay interest semi-annually. In addition, TIPS, as the name implies, have an inflation protection mechanism that automatically adjusts the face value based on changes in the Consumer Price Index. The interest payment is recalculated each to reflect the up or down movement of the face value. When TIPS mature, the investor will receive the greater of the bond’s face value or the inflation adjusted principal amount.
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Treasury securities are backed by the full faith and credit of the U.S. government as to the timely payment of principal and interest. The principal value will fluctuate with changes in market conditions. If they are not held to maturity, they may be worth more or less than their original value.
U.S. Savings Bonds
The federal government began issuing savings bonds during the depression to help people save and avoid the fluctuations of the stock market. Investors can choose from several types of savings bonds.
Series EE Bonds
With denominations that range from $50 to $10,000, EE bonds are issued at a discount of 50% from their face value and are assigned a fixed rate of interest. EE bonds can continue to earn interest for as long as 30 years and they can be cashed in as early as 12 months.
Series I Bonds
Unlike EE bonds, Series I bonds are issued at full face value. In addition to having a fixed interest rate there is an inflation-adjusted rate. Every six months the Treasury establishes the new inflation-adjusted rate, based on changes in the Consumer Price Index, which is added to the fixed interest rate to determine the total interest credited for that period. The maximum denomination for I bonds is $10,000. Like EE bonds, I bonds can earn interest up to 30 years but can be redeemed after 12 months.