U.S. Treasury securities, also called Treasuries, are backed by the “full faith and credit” of the U.S. Government. Treasuries allow investors to invest in the activities of the Department of the Treasury. They are highly liquid and among the safest investments an investor can make.
T-Bills, T-Notes, and T-Bonds
T-Bills are sold at short-term maturities: 4, 8, 13, 17, 26, and 52 weeks. They are sold at a discount and pay the difference upon maturity. T-Bills are often used to manage cash for a short window of time or build a portfolio that grows slowly and steadily compared to other investments.
T-Notes and T-Bonds have longer maturities. T-Notes have terms of 2, 3, 5, 7, and 10 years, and T-Bonds have 20 or 30 years. Unlike T-Bills, they pay interest semiannually, so their longer yields may appeal to investors with fixed income needs. Treasury bills, notes, and bonds are exempt from state taxes.
Agency Bonds
Agency bonds are issued by institutions, such as the Federal Home Loan Banks. The U.S. Government backs with its faith and credit the bonds issued by its own agencies, and some have the same tax exemptions as Treasuries. Non-governmental agencies, such as Fannie Mae or Freddie Mac, are chartered corporations approved to sell bonds.
Treasury Inflation-Protected Securities (TIPS)
TIPS have maturities of 5, 10, and 30 years and protect portfolios from inflation by design. The bond’s principal is indexed to inflation, and the fixed interest rate is tied to the principal. Therefore, the interest and principal rise together. Like T-Notes and T-Bonds, interest payments are paid semiannually.
Before maturity, the increase in principal is considered taxable income, even while it’s held away in the bond. However, the principal and interest gains are state and local tax exempt upon maturity. As well, the investor will be paid the original or inflation-adjusted principal, whichever is greater.
Starting with Security
Treasuries are liquid, secure investments used to build cash or provide income. For investors seeking the low-risk diversification, contact the financial advisors at First State at 918-492-1361.
This overview is for informational purposes only and is not a recommendation. It should not be the sole deciding factor in making an investment. Investing is a risk and, as with all risks, a positive return is not guaranteed. Past performance does not indicate future results.