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A Quick Insight into Treasury Bond & Other Investment

A Quick Insight into Treasury Bond & Other Investment

T-bond or treasury bonds are debts that the US FG issues to raise money. Buying a US treasury bond is like lending money to the government. You will be rewarded with a fixed interest level until the loan is due. 

The US government guarantees such securities, so there is a huge probability that you will get your money back. 

On the other hand, a bond is like a loan you give out to any entity, a municipality or corporation, or the federal government for T-bonds. One will make the initial loan amount, usually the principal, and get interest until the loan is due at maturity. You will get the entire principal alongside the final interest due when it matures. 

All securities can be classified as bonds; however, the FG prefers the term Treasury bond to refer to long-term securities. Such bonds are issued based on a 30-year term with interest payment every six months. However, one need not hold the bond for the entire 30 years. It can be sold anytime after it spans 45 days. 

Irrespective of your age or investment goal, having a small part of your investment portfolio in bonds is essential. The safest and best quality bond is treasury securities, making a terrific linchpin for your portfolio. Since Treasury Securities are incredibly safe with little risk, they have low interest.

  

Interest Rate Risk

As your rate of interest rises, the bond will lose its value. This is the foundation of interest rate risk which talks about the risk involved with interest rate changes. Bond values with longer terms are usually sensitive to adjustment in interest rates. 

In the same way with most long-term bonds, treasury bonds have a high rate of the interest rate rising in the given 30 year period. Any rise in the interest rate will correspond to a fall in the bond value. In compensation for the interest rate risk, you will have a higher interest rate from long-term issues than a short-term problem.

 

Investing in Treasury bonds

You have two ways in which you can buy individual Treasury securities:

  1. Treasury Direct from the US treasury website department or

  2. Your online broker

You can buy and sell Treasury securities in your brokerage account with many brokers. However, you will need a minimum purchase of $1000 for Treasury Securities. One can buy securities in increments of $100 on Treasury Direct. 

Remember that you will pay federal taxes on the interest you get from Treasury Securities even though it is exempt from local taxes.

 

Treasury Notes 

These are the intermediate terms of Treasury Security. Currently, they are issued in terms of 2, 3, 5, 7, and 10 years. 

Intermediate-term bonds are a good compromise between the high risk of long-term bonds and the low funds from short-term bonds. This makes them a good investment point. The interest rate is a value of the terms of the bond as long-term bonds pay higher interest rates.

 

Treasury Bills

Also known as T-bills, they are the short form for treasury securities and occur in weeks – 4, 13, 26, and 52 weeks. Cash management bill is a unique type of T-bill and is issued in a couple of days. 

Treasury bills do not pay interest, unlike treasury notes and bonds. Instead, they are sold at a small price – a discount. 

This explains why t-bills pay the lowest rate compared to the series of treasury securities available. As of mid-2021, the rates available at various auctions are 0.0045% for a 4-week to 0.075% for a year Treasury bill. However, the 30-year Treasury bond pays 1.89%.


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