Types of Bonds
What Are U.S. Treasury Securities?
U.S. Treasury securities—such as bills, notes and bonds—are debt obligations of the U.S. government. When you buy a U.S. Treasury security, you are lending money to the federal government for a specified period of time.
Because these debt obligations are backed by the “full faith and credit” of the government, and thus by its ability to raise tax revenues and print currency, U.S. Treasury securities – or "Treasuries" – are generally considered the safest of all investments. They are viewed in the market as having virtually no “credit risk,” meaning that it is highly probable your interest and principal will be paid fully and on time.
Because of this unique degree of safety, interest rates are generally lower for this class of secruities than for other widely traded debt, riskier debt securities such as corporate bonds. A good rule of thumb to follow is that safer investments offer lower returns. Conversely, the higher the risk, the higher the return.
The amount of marketable U.S. Treasury securities is huge, with $7.3 trillion in outstanding bills, notes and bonds as of December 31, 2009*. The Treasury market is one of the world's most liquid debt markets, meaning it is one where pricing, executing and settling a trade is very efficient and thus inexpensive due, in part, to very tight bid/ask spreads. The average daily trading volume in U.S. Treasuries was $409.8 billion in 2009** and these securities trade virtually 24 hours a day with the U.S. primary dealers making live and continuous markets in these securities each business day via trading desks in cities across the globe like Tokyo, London, and New York.
In 2009, the U.S. Federal Reserve estimated that 10.2% of bills, notes and bonds were held by individuals, 11.7% by banks and mutual funds, 6.6% by public and private pension funds, 47.7% by foreign investors, 6.8% by state and local governments and 16.9% by other investors.
The focus of this section is on marketable U.S. Treasury securities, those that are of most interest to individual investors because they trade on the open market. There are other classes of Treasury debt—non-marketable securities—that are not transferable but can be purchased from and redeemed by the government. U.S. Savings Bonds fall into this category, and, even though they are non-marketable, are discussed here because they are designed for individual investors.
* Source: U.S. Treasury
** As reported by the primary dealers to the Federal Reserve Bank of New York. Specific statistics can be found at http://www.newyorkfed.org/markets/gsds/search.cfm.
All information and opinions contained in this publication were produced by the Securities Industry and Financial Markets Association from our membership and other sources believed by the Association to be accurate and reliable. By providing this general information, the Securities Industry and Financial Markets Association makes neither a recommendation as to the appropriateness of investing in fixed-income securities nor is it providing any specific investment advice for any particular investor. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and sources may be required to make informed investment decisions.