treasurys

Treasurys are U.S. government debt securities issued by the Department of the Treasury to fund government operations and manage the national debt. They are widely regarded as among the safest and most liquid investments because they are backed by the full faith and credit of the U.S. government. The term typically includes several security types with different maturities and features: Treasury bills, notes, bonds, and inflation-protected securities (TIPS).

Treasury bills are short-term securities issued at a discount to their face value and mature in one year or less. They do not pay periodic interest; the return is the difference between the purchase price and the face value paid at maturity. Treasury notes and bonds pay semiannual interest at fixed rates and mature, respectively, in multi-year intervals. Notes have maturities from about two to ten years; bonds have longer maturities, traditionally 20 or 30 years. TIPS are designed to offset inflation; their principal adjusts with the Consumer Price Index, and interest is paid semiannually on the adjusted principal.

Treasurys are sold through regular auctions conducted by the Treasury. Investors can submit competitive bids or noncompetitive bids, the latter guaranteeing participation at the set yield. After issuance, Treasuries trade in the highly liquid secondary market, with prices fluctuating in response to changes in interest rates. The market is widely used by institutional investors, central banks, and financial institutions as a benchmark for the risk-free rate and as collateral in various transactions. Tax treatment varies: in the United States, Treasury interest is exempt from state and local taxes but subject to federal income tax. Although considered very low risk, Treasuries carry interest-rate and inflation risks, particularly for longer maturities.