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9/22/2017 12:11:25 AM
Posted: 8/9/2005 7:42:06 AM EDT
Can anyone explain the difference between Treasury "bills," "notes," and "bonds?"

I use the terms interchangeably, but I have a hunch there are actually differences between them.
Link Posted: 8/9/2005 7:50:36 AM EDT
<insert use google joke here>

This will explain it better than I can, although I know from my macroecon class they are all used to raise funds for the .gov


U.S. Treasury bills, notes and bonds and U.S. savings bonds are an excellent, risk-free way to preserve your principal, get a pretty good return and keep your investment relatively liquid.

The government sells Treasury securities -- bills, notes and savings bonds. In addition, U.S. Treasury bonds are available on the open market. All of these are debt instruments sold to raise money to operate the government and pay off debt. Treasury securities are a safe investment because they're backed by the U.S. government.

The minimum amount required to buy a Treasury bill or note is $1,000. Savings bonds can be purchased for as little as $25.

Treasury bills (T-bills) are short-term securities that mature in one year or less. You buy them for less than par (face) value. When the bill matures, you receive par value. For example, you might buy a $10,000 26-week T-bill for $9,750. If you hold it until maturity, you'll be paid $10,000. That extra $250 is the interest you earned.

Treasury notes mature in two to 10 years.

Treasury bonds were issued in maturities of 10 to 30 years, but the Treasury stopped issuing fixed-principal bonds in October 2001. Many of the bonds are still outstanding and earning a fixed rate of interest semi-annually. If someone cashes a bond before maturity, you can buy what's left of that bond on something called the secondary market. A broker can help you make the purchase.

Both notes and bonds pay a fixed rate of interest every six months until the security matures. Par value is repaid when the security matures.

Treasury bills, notes and bonds are transferable -- you can buy or sell them in the securities market.

Treasury bills and notes are sold through competitive and noncompetitive bidding at more than 150 auctions held throughout the year. Many newspapers report auction schedules. You can also find auction schedules on the government Web site.

Auction dates are announced seven to 10 days before the auction. The Web site also has detailed information on how bids are placed. There are no fees when you buy Treasuries directly from the government.

You can also buy Treasuries on the securities market through a broker or dealer. If you choose that method, you'll pay a commission and perhaps a transaction fee.

The income you earn on Treasuries is exempt from state and local taxes.

Link Posted: 8/9/2005 9:18:24 AM EDT
[Last Edit: 8/9/2005 9:19:05 AM EDT by 55Kingpin]
There's some good info. above, but also Treasury bills or T-bills or Strips are actually attached to a bond, when they are "stripped" away they can be sold and traded separately from the bond.

Basically, the bond is the pricipal, and the strip is the interest payment.......for the gov..

Bond prices and strips will move inversely with the interest rate. When interest rates go up bond prices go down, and vice versa.

Edited: for clarification
Link Posted: 8/9/2005 9:30:38 AM EDT
Link Posted: 8/9/2005 10:08:52 AM EDT
Questions to ask:

1. What interest rate does it pay?
2. Is the interest that it pays taxable?
3. Is the interest rate that it is paying greater than the rate of inflation?

In many kinds of these investments, you actually loose money. Example:

You invest $100k at 4% interest. The interest is taxable. Inflation is 4%.

At the end of the year, you have $104k. However, your $104k has the same buying power as the $100k you originally invested. Then the gov.org taxes your $4k as income. So, you owe $1k on your $4k gain. So, your buying power is actually less than your original investment.
Link Posted: 8/11/2005 3:04:41 PM EDT
Lots of good information already posted. I would just like to add that the Treasury also sells TIPS.

These are bonds that are indexed for inflation. If inflation picks up, they will pay more, and be worth more when they mature.

Treasury Direct is the easy way to buy. Or go through a broker, or buy a mutual fund. Treasury Direct is the best way for the buy and hold approach.
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