What is Foolsaurus?

It's a glossary of investing terms edited and maintained by our analysts, writers and YOU, our Foolish community. Get Started Now!


The Advantages of Treasury Bonds & Notes

Original post by Mike Parker of Demand Media

The Bureau of the Public Debt, a small agency of the U.S. Department of the Treasury, is responsible for borrowing money on behalf of the United States government, and for accounting for that debt. The bureau accomplishes its purpose primarily through the sale of U.S. government securities such as Treasury bills, Treasury notes, Treasury bonds and U.S. Savings Bonds. There are numerous advantages to investing in such securities as Treasury Bonds and Treasury Notes, including their long history of consistent interest payments.

Treasury Bonds and Treasury Notes

Treasury bonds are long-term debt instruments of the U.S. government. Treasury bonds pay bi-annual interest for 30 years. They can be redeemed at maturity for their face value. They are sold in face value increments of $100, although the sale price at auction may be more or less than the face value. Treasury notes are intermediate-term debt instruments of the U.S. government. Treasury notes pay bi-annual interest and are redeemed at face value upon maturity. Treasury notes are issued in a variety of maturities, including two, three, five, seven and 10 year maturity periods. Treasury notes are also sold in face value increments of $100, although the sales price at auction may be more or less than the face value.

Safety

Treasury notes and Treasury bonds, like all Treasury securities, are backed by the full faith and credit of the United States government. Although Treasury bonds and Treasury notes are not insured by the Federal Deposit Insurance Corporation or any other agency of the federal government, they are considered to be among the safest and most secure of all securities, due in part to the fact that the United States federal government has never defaulted on its debt.

Regular Stream of Income

Both Treasury bonds and Treasury notes pay interest every six months, and can be redeemed at their face value upon maturity. Investors who are seeking a regular stream of predictable income may purchase Treasury bonds or Treasury notes during six successive months and receive a regular interest payment each month of the year.

Tax Benefits

The Internal Revenue Service considers interest and any realized capital appreciation from Treasury bonds and Treasury notes to be reportable income, which is subject to federal income taxes. The interest from Treasury bonds and Treasury notes is exempt from income taxation at the state and local level.

                   

Resources

References

About the Author

Mike Parker has been writing professionally for more than 15 years. His work has appeared in various print and online publications, including "Grassroots Music Magazine," "Christian Single Magazine," BuddyHollywood.com and Lifeway.com. He earned a Bachelor of Arts degree in bible from Hardin-Simmons University.

Advertisement