United States Treasury security

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United States Treasuries history compared to the Federal Funds Rate U.S. Treasuries.png
United States Treasuries history compared to the Federal Funds Rate
2 to 10 year treasury yield spread 2 to 10 year yield spread.png
2 to 10 year treasury yield spread

United States Treasury securities are government debt instruments issued by the United States Department of the Treasury to finance government spending as an alternative to taxation. Treasury securities are often referred to simply as Treasurys. Since 2012, U.S. government debt has been managed by the Bureau of the Fiscal Service, succeeding the Bureau of the Public Debt.


There are four types of marketable treasury securities: Treasury bills, Treasury notes, Treasury bonds, and Treasury Inflation Protected Securities (TIPS). The government sells these securities in auctions conducted by the Federal Reserve Bank of New York, after which they can be traded in secondary markets. Non-marketable securities include savings bonds, issued to the public and transferable only as gifts; the State and Local Government Series (SLGS), purchaseable only with the proceeds of state and municipal bond sales; and the Government Account Series, purchased by units of the federal government.

Treasury securities are backed by the full faith and credit of the United States, meaning that the government promises to raise money by any legally available means to repay them. Although the United States is a sovereign power and may default without recourse, its strong record of repayment has given Treasury securities a reputation as one of the world's lowest-risk investments.


To finance the costs of World War I, the U.S. Government increased income taxes (see the War Revenue Act of 1917) and issued government debt, called war bonds. Traditionally, the government borrowed from other countries, but there were no other countries from which to borrow in 1917. [1]

The Treasury raised funding throughout the war by selling $21.5 billion in 'Liberty bonds.' These bonds were sold at subscription where officials created coupon price and then sold it at par value. At this price, subscriptions could be filled in as little as one day, but usually remained open for several weeks, depending on demand for the bond. [1]

After the war, the Liberty bonds were reaching maturity, but the Treasury was unable to pay each down fully with only limited budget surpluses. To solve this problem, the Treasury refinanced the debt with variable short and medium-term maturities. Again the Treasury issued debt through fixed-price subscription, where both the coupon and the price of the debt were dictated by the Treasury. [1]

The problems with debt issuance became apparent in the late 1920s. The system suffered from chronic over-subscription, where interest rates were so attractive that there were more purchasers of debt than required by the government. This indicated that the government was paying too much for debt. As government debt was undervalued, debt purchasers could buy from the government and immediately sell to another market participant at a higher price. [1]

In 1929, the US Treasury shifted from the fixed-price subscription system to a system of auctioning where 'Treasury Bills' would be sold to the highest bidder. Securities were then issued on a pro rata system where securities would be allocated to the highest bidder until their demand was full. If more treasuries were supplied by the government, they would then be allocated to the next highest bidder. This system allowed the market, rather than the government, to set the price. On December 10, 1929, the Treasury issued its first auction. The result was the issuing of $224 million three-month bills. The highest bid was at 99.310 with the lowest bid accepted at 99.152. [1]

Marketable securities

The types and procedures for marketable security issues are described in the Treasury's Uniform Offering Circular (31 CFR 356).

Treasury bill

1969 $100,000 Treasury Bill 1969 $100K Treasury Bill (front).jpg
1969 $100,000 Treasury Bill

Treasury bills (T-bills) are zero-coupon bonds that mature in one year or less. They are bought at a discount of the par value and, instead of paying a coupon interest, are eventually redeemed at that par value to create a positive yield to maturity. [2]

Regular weekly T-bills are commonly issued with maturity dates of 4 weeks, 8 weeks, 13 weeks, 26 weeks, and 52 weeks. Treasury bills are sold by single-price auctions held weekly. Offering amounts for 13-week and 26-week bills are announced each Thursday for auction on the following Monday and settlement, or issuance, on Thursday. Offering amounts for 4-week and 8-week bills are announced on Monday for auction the next day, Tuesday, and issuance on Thursday. Offering amounts for 52-week bills are announced every fourth Thursday for auction the next Tuesday, and issuance on the following Thursday. The minimum purchase is $100; it had been $1,000 prior to April 2008. Mature T-bills are also redeemed on each Thursday. Banks and financial institutions, especially primary dealers, are the largest purchasers of T-bills.

Like other securities, individual issues of T-bills are identified with a unique CUSIP number. The 13-week bill issued three months after a 26-week bill is considered a re-opening of the 26-week bill and is given the same CUSIP number. The 4-week bill issued two months after that and maturing on the same day is also considered a re-opening of the 26-week bill and shares the same CUSIP number. For example, the 26-week bill issued on March 22, 2007, and maturing on September 20, 2007, has the same CUSIP number (912795A27) as the 13-week bill issued on June 21, 2007, and maturing on September 20, 2007, and as the 4-week bill issued on August 23, 2007 that matures on September 20, 2007.

During periods when Treasury cash balances are particularly low, the Treasury may sell cash management bills (CMBs). These are sold through a discount auction process like regular bills, but are irregular in the amount offered, the timing, and the maturity term. CMBs are referred to as "on-cycle" when they mature on the same day as a regular bill issue, and "off-cycle" otherwise. [3] Before the introduction of the four-week bill in 2001, the Treasury sold CMBs routinely to ensure short-term cash availability. [4] CMB offerings then all but disappeared aside from occasional auction system tests [5] until the COVID-19 pandemic, when the Treasury used them extensively to reinforce its cash position amid fiscal uncertainty. [6]

Treasury bills are quoted for purchase and sale in the secondary market on an annualized discount percentage, or basis. General calculation for the discount yield for Treasury bills is: [7]

Treasury note

This is the modern usage of Treasury note in the U.S.; for the earlier meanings, see Treasury Note (disambiguation).
1976 $5,000 Treasury note 1976 $5000 8%25 Treasury Note.jpg
1976 $5,000 Treasury note

Treasury notes (T-notes) have maturities of 2, 3, 5, 7, or 10 years, have a coupon payment every six months, and are sold in increments of $100. T-note prices are quoted on the secondary market as a percentage of the par value in thirty-seconds of a dollar. Ordinary Treasury notes pay a fixed interest rate that is set at auction. Another type of note, known as the floating rate note, pays interest at a rate that adjusts quarterly based on bill rates.

The 10-year Treasury note has become the security most frequently quoted when discussing the performance of the U.S. government bond market and is used to convey the market's take on longer-term macroeconomic expectations.

Treasury bond

1979 $10,000 Treasury Bond 1979 $10,000 Treasury Bond .jpg
1979 $10,000 Treasury Bond

Treasury bonds (T-bonds, also called a long bond) have the longest maturity at thirty years. They have a coupon payment every six months like T-notes. [8]

The U.S. Federal government suspended issuing 30-year Treasury bonds for four years from February 18, 2002 to February 9, 2006. [9] As the U.S. government used budget surpluses to pay down Federal debt in the late 1990s, [10] the 10-year Treasury note began to replace the 30-year Treasury bond as the general, most-followed metric of the U.S. bond market. However, because of demand from pension funds and large, long-term institutional investors, along with a need to diversify the Treasury's liabilities—and also because the flatter yield curve meant that the opportunity cost of selling long-dated debt had dropped—the 30-year Treasury bond was re-introduced in February 2006 and is now issued quarterly. [11] In 2019, Treasury Secretary Steven Mnuchin said that the Trump administration was considering issuance of 50-year and even 100-year Treasury bonds. [12]


Treasury Inflation-Protected Securities (TIPS) are inflation-indexed bonds issued by the U.S. Treasury. The principal is adjusted with respect to the Consumer Price Index (CPI), the most commonly used measure of inflation. When the CPI rises, the principal is adjusted upward; if the index falls, the principal is adjusted downwards. [13] The coupon rate is constant, but generates a different amount of interest when multiplied by the inflation-adjusted principal, thus protecting the holder against the inflation rate as measured by the CPI. TIPS were introduced in 1997. [14] TIPS are currently offered in 5-year, 10-year and 30-year maturities. [15]

Coupon stripping

The secondary market for securities included T-notes, T-bonds, and TIPS whose interest and principal portions of the security have been separated, or "stripped", in order to sell them separately. The practice derives from the days before computerization, when treasury securities were issued as paper bearer bonds; traders would literally separate the interest coupons from paper securities for separate resale, while the principal would be resold as a zero-coupon bond.

The modern versions are known as Separate Trading of Registered Interest and Principal Securities (STRIPS). The Treasury does not directly issue STRIPS – they are products of investment banks or brokerage firms – but it does register STRIPS in its book-entry system. STRIPS must be purchased through a broker, and cannot be purchased from TreasuryDirect.

Nonmarketable securities

U.S. savings bonds

$1,000 Series EE savings bond featuring Benjamin Franklin EE Savings Bond.jpg
$1,000 Series EE savings bond featuring Benjamin Franklin

Savings bonds were created in 1935, and, in the form of Series E bonds, also known as war bonds, were widely sold to finance World War II. Unlike Treasury Bonds, they are not marketable, being redeemable only by the original purchaser (or beneficiary in case of death). They remained popular after the end of WWII, often used for personal savings and given as gifts. In 2002, the Treasury Department started changing the savings bond program by lowering interest rates and closing its marketing offices. [16] As of January 1, 2012, financial institutions no longer sell paper savings bonds. [17]

Savings bonds are currently offered in two forms, Series EE and Series I bonds. Series EE bonds pay a fixed rate but are guaranteed to pay at least double the purchase price when they reach initial maturity at 20 years; if the compounded interest has not resulted in a doubling of the initial purchase amount, the Treasury makes a one-time adjustment at 20 years to make up the difference. They continue to pay interest until 30 years. [18] [19]

Series I bonds have a variable interest rate that consists of two components. The first is a fixed rate which will remain constant over the life of the bond; the second component is a variable rate reset every six months from the time the bond is purchased based on the current inflation rate as measured by the Consumer Price Index for urban consumers (CPI-U) from a six-month period ending one month prior to the reset time. [18] New rates are published on May 1 and November 1 of every year. [20] During times of deflation the negative inflation rate can wipe out the return of the fixed portion, but the combined rate cannot go below 0% and the bond will not lose value. [20] Series I bonds are the only ones offered as paper bonds since 2011, and those may only be purchased by using a portion of a federal income tax refund. [21]

Zero-Percent Certificate of Indebtedness

The "Certificate of Indebtedness" (C of I) is issued only through the TreasuryDirect system. It is an automatically renewed security with one-day maturity that can be purchased in any amount up to $1000, and does not earn interest. An investor can use Certificates of Indebtedness to save funds in a TreasuryDirect account for the purchase of an interest-bearing security. [22]

Government Account Series

The Government Account Series is the principal form of intragovernmental debt holdings. [23] The government issues GAS securities to federal departments and federally-established entities like the Federal Deposit Insurance Corporation that have excess cash.

State and Local Government Series

The State and Local Government Series (SLGS) is issued to government entities below the federal level which have excess cash that was obtained through the sale of tax-exempt bonds. The federal tax code generally forbids investment of this cash in securities that offer a higher yield than the original bond, but SLGS securities are exempt from this restriction. The Treasury issues SLGS securities at its discretion and has suspended sales on several occasions to adhere to the federal debt ceiling.



In June 2020 approximately $19.4 trillion of outstanding Treasury securities, representing 73% of the public debt, belonged to domestic holders. Of this amount $5.9 trillion or 22% of the debt was held by agencies of the federal government itself. These intragovernmental securities function as time deposits of the agencies' excess and reserve funds to the Treasury. The Federal Reserve Bank of New York was also a significant holder as the market agent of the Federal Reserve system, with $4.6 trillion or roughly 17%. Other domestic holders included mutual funds ($3.6 trillion), banks ($1.2 trillion), state and local governments ($830 billion), private pension funds ($740 billion), insurers ($240 billion) and assorted private entities and individuals ($2.3 trillion, including $150 billion in Savings Bonds). [24]


As of June 28, 2019, [25] the top foreign holders of U.S. Treasury securities are:

HoldersLong-term – US$ billion
(percent change
since June 2018)
Short-term – US$ billion
(percent change
since June 2018)
Total – US$ billion
(percent change
since June 2018)
Est. ratio to GDP
(where 2019 values
are available)
[27] [28]
Flag of Japan.svg  Japan 1,064.7
(− 4%)
+ 9%
Flag of the People's Republic of China.svg  China 1,108.7
(− 7%)
(− 9%)
(− 7%)
Flag of the United Kingdom.svg  United Kingdom 286.5
Flag of Brazil.svg  Brazil 308.9
+ 5%
+ 4%
Flag of Ireland.svg  Ireland 223.9
(− 9%)
Flag of Switzerland.svg   Switzerland 194.6
(− 6%)
(− 1%)
Flag of Luxembourg.svg  Luxembourg 183.3
+ 8%
(− 1%)
+ 6%
Flag of the Cayman Islands.svg  Cayman Islands 134.3
Flag of Hong Kong.svg  Hong Kong 189.6
Flag of Belgium (civil).svg  Belgium 174.6
Flag of Saudi Arabia.svg  Saudi Arabia 130.4
+ 8%
Flag of the Republic of China.svg  Taiwan 172.2
+ 7%
+ 8%
Flag of India.svg  India 160.6
+ 3%
+ 8%
(− 3%)
+ 7%

See also

Related Research Articles

Bond (finance) Instrument of indebtedness

In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. The most common types of bonds include municipal bonds and corporate bonds. Bonds can be in mutual funds or can be in private investing where a person would give a loan to a company or the government.

Zero-coupon bond A bond where the face value is repaid at the time of maturity

A zero coupon bond is a bond in which the face value is repaid at the time of maturity. That definition assumes a positive time value of money. It does not make periodic interest payments or have so-called coupons, hence the term zero coupon bond. When the bond reaches maturity, its investor receives its par value. Examples of zero-coupon bonds include US Treasury bills, US savings bonds, long-term zero-coupon bonds, and any type of coupon bond that has been stripped of its coupons. Zero coupon and deep discount bonds are terms that are used interchangeably.

Government bond Bond issued by a government

A government bond or sovereign bond is an instrument of indebtedness issued by a national government to support government spending. It generally includes a commitment to pay periodic interest, called coupon payments, and to repay the face value on the maturity date. For example, a bondholder invests $20,000 into a 10-year government bond with a 10% annual coupon; the government would pay the bondholder 10% of the $20,000 each year. At the maturity date the government would give back the original $20,000.

Municipal bond

A municipal bond, commonly known as a muni bond, is a bond issued by a local government or territory, or one of their agencies. It is generally used to finance public projects such as roads, schools, airports and seaports, and infrastructure-related repairs. The term municipal bond is commonly used in the United States, which has the largest market of such trade-able securities in the world. As of 2011, the municipal bond market was valued at $3.7 trillion. Potential issuers of municipal bonds include states, cities, counties, redevelopment agencies, special-purpose districts, school districts, public utility districts, publicly owned airports and seaports, and other governmental entities at or below the state level having more than a de minimis amount of one of the three sovereign powers: the power of taxation, the power of eminent domain or the police power.

Yield (finance)

In finance, the yield on a security is a measure of the ex-ante return to a holder of the security. It is measure applied to common, preferred stock, convertible stocks and bonds, fixed income instruments, including bonds, including government bonds and corporate bonds, notes and annuities.

Fixed income

Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule. For example, the borrower may have to pay interest at a fixed rate once a year and repay the principal amount on maturity. Fixed-income securities can be contrasted with equity securities – often referred to as stocks and shares – that create no obligation to pay dividends or any other form of income.

In finance, a fixed rate bond is a type of debt instrument bond with a fixed coupon (interest) rate, as opposed to a floating rate note. A fixed rate bond is a long term debt paper that carries a predetermined interest rate. The interest rate is known as coupon rate and interest is payable at specified dates before bond maturity. Due to the fixed coupon, the market value of a fixed-rate bond is susceptible to fluctuations in interest rates, and therefore has a significant amount of interest rate risk. That being said, the fixed-rate bond, although a conservative investment, is highly susceptible to a loss in value due to inflation. The fixed-rate bond’s long maturity schedule and predetermined coupon rate offers an investor a solidified return, while leaving the individual exposed to a rise in the consumer price index and overall decrease in their purchasing power.

Cash and cash equivalents

Cash and cash equivalents (CCE) are the most liquid current assets found on a business's balance sheet. Cash equivalents are short-term commitments "with temporarily idle cash and easily convertible into a known cash amount". An investment normally counts to be a cash equivalent when it has a short maturity period of 90 days or less, and can be included in the cash and cash equivalents balance from the date of acquisition when it carries an insignificant risk of changes in the asset value; with more than 90 days maturity, the asset is not considered as cash and cash equivalents. Equity investments mostly are excluded from cash equivalents, unless they are essentially cash equivalents, for instance, if the preferred shares acquired within a short maturity period and with specified recovery date.

Mortgage-backed security

A mortgage-backed security (MBS) is a type of asset-backed security which is secured by a mortgage or collection of mortgages. The mortgages are aggregated and sold to a group of individuals that securitizes, or packages, the loans together into a security that investors can buy. Bonds securitizing mortgages are usually treated as a separate class, termed residential; another class is commercial, depending on whether the underlying asset is mortgages owned by borrowers or assets for commercial purposes ranging from office space to multi-dwelling buildings.

Corporate bond

A corporate bond is a bond issued by a corporation in order to raise financing for a variety of reasons such as to ongoing operations, M&A, or to expand business. The term is usually applied to longer-term debt instruments, with maturity of at least one year. Corporate debt instruments with maturity shorter than one year are referred to as commercial paper.

Inflation-indexed bond Bonds where the principal is indexed to inflation or deflation on a daily basis

Daily inflation-indexed bonds are bonds where the principal is indexed to inflation or deflation on a daily basis. They are thus designed to hedge the inflation risk of a bond. The first known inflation-indexed bond was issued by the Massachusetts Bay Company in 1780. The market has grown dramatically since the British government began issuing inflation-linked Gilts in 1981. As of 2019, government-issued inflation-linked bonds comprise over $3.1 trillion of the international debt market. The inflation-linked market primarily consists of sovereign bonds, with privately issued inflation-linked bonds constituting a small portion of the market.

Fixed income analysis is the valuation of fixed income or debt securities, and the analysis of their interest rate risk, credit risk, and likely price behavior in hedging portfolios. The analyst might conclude to buy, sell, hold, hedge or stay out of the particular security.

Bond market

The bond market is a financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities, known as the secondary market. This is usually in the form of bonds, but it may include notes, bills, and so on.

Gilt-edged securities are bonds issued by the UK Government. The term is of British origin, and then referred to the debt securities issued by the Bank of England on behalf of His/Her Majesty's Treasury, whose paper certificates had a gilt edge. Hence, they are known as gilt-edged securities, or gilts for short.

A bond fund or debt fund is a fund that invests in bonds, or other debt securities. Bond funds can be contrasted with stock funds and money funds. Bond funds typically pay periodic dividends that include interest payments on the fund's underlying securities plus periodic realized capital appreciation. Bond funds typically pay higher dividends than CDs and money market accounts. Most bond funds pay out dividends more frequently than individual bonds.

Real interest rate

The real interest rate is the rate of interest an investor, saver or lender receives after allowing for inflation. It can be described more formally by the Fisher equation, which states that the real interest rate is approximately the nominal interest rate minus the inflation rate.

In finance, inflation derivative refers to an over-the-counter and exchange-traded derivative that is used to transfer inflation risk from one counterparty to another. See Exotic derivatives.

United States Savings Bonds Debt issued by the government of the United States.

United States savings bonds are debt securities issued by the United States Department of the Treasury to help pay for the U.S. government's borrowing needs. U.S. savings bonds are considered one of the safest investments because they are backed by the full faith and credit of the United States government. The savings bonds are nonmarketable treasury securities issued to the public, which means they cannot be traded on secondary markets or otherwise transferable. They are redeemable only by the original purchaser, or a beneficiary in case of death.

An inverse floating rate note, or simply an inverse floater, is a type of bond or other type of debt instrument used in finance whose coupon rate has an inverse relationship to short-term interest rates. With an inverse floater, as interest rates rise the coupon rate falls. The basic structure is the same as an ordinary floating rate note except for the direction in which the coupon rate is adjusted. These two structures are often used in concert.


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Further reading

Sarah L. Quinn. 2019. American Bonds: How Credit Markets Shaped a Nation . Princeton University Press.