About Government/Agency Bonds
Market Risk and U.S. Treasury Securities
Although Treasuries are considered to have very low free credit risk, they are affected by other types of risk, mainly interest-rate risk and inflation risk. While investors are effectively guaranteed to receive interest and principal payments as promised, the underlying value of the bond itself may change depending on the direction of interest rates.
As with all fixed-income securities, if interest rates in general rise after a U.S. Treasury security is issued, the value of the issued security will fall, since bonds paying higher rates will come into the market. Similarly, if interest rates fall, the value of the older, higher-paying bond will rise in comparison with new issues.
In a period of low inflation and moderate shifts in interest rates, investors often are content to hold their bonds to maturity, disregarding the interim changes in market value of their bonds. However, some investors strive to structure their bond holdings to minimize market risks and take advantage of market opportunities. One such technique is called “laddering.” Here, the portfolio is structured so that securities mature at regular intervals, allowing the investor to make new investments with cash available from the maturing securities.
To help investors deal with inflation risk, the U.S. Treasury has created inflation-indexed notes and bonds called TIPS, and inflation-indexed savings bonds called I Bonds. Please see the section entitled Other U.S. Treasury Securities for more information.
U.S. Treasury securities, like all things that are bought and sold, are affected by the laws of supply and demand. From 1997 until 2001, the U.S. Treasury reduced the total amount of its outstanding marketable securities. It did this by curtailing, and ultimately eliminating, the sale of certain securities—in particular 30-year bonds. In addition, long-dated bonds held by the public were repurchased by the U.S. Treasury before their due dates. Together, these actions resulted in a perceived “shortage” of long-maturity U.S. Treasury securities. Prices for outstanding “long-bond” securities rose and yields fell. By mid-2003, as the fiscal situation had reversed from surplus to deficit, the U.S. Treasury had ceased to buy back existing bonds, significantly increasing the amount outstanding. The U.S. Treasury has also reintroduced 3-year, 7-year and 30-year maturities.
|Treasury Securities at a Glance|
|Security Type||Minimum Investment||Current Maturities Available*|
|Treasury Bills||$100||4-week, 13-week, 26-week and 52-week; Other maturities offered by Treasury on an as-needed basis|
|Treasury Notes||$100||2-year, 3-year, 5-year, 7-year and 10-year|
|Treasury Inflation-Protected Securities (TIPS)||$100||5-year, 10-year, and 30-Year|
|Treasury STRIPS||$100||6 months to 30 years|
|Savings Bonds (Series EE)||$50||Payable after 6 months, but earns interest for 30 years|
|Savings Bonds (Series I)||$50||Payable after 6 months, but earns interest for 30 years|
* as of March 20, 2010
For the most current information on treasury offerings visit the Treasury’s Bureau of the Public Debt Web site.
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.