US Treasury Bonds

US Treasury Bonds are virtually by all definitions a loan. Taxpayers are the lender. The borrower is the U.S. government. The US Government needs money to operate to fund the federal deficit so they borrow money from the public by issuing bonds.

Terms and Definitions

When a bond is issued, the price you pay is known as its "face value." Once you buy it, the Government promises to pay you back on a particular day that is known as the "maturity date". They issue that instrument at a predetermined rate of interest, called the "coupon." For instance, if you buy a bond with a $1,000 face value, a 6% coupon and a 10-year maturity. You would collect interest payments totalling $60 in each of those 10 years. When the decade was up, you'd get back your $1,000.

If you buy a US Treasury Bond and hold it until maturity, you will know exactly how much you're going to get back. That's why bonds are also known as "fixed-income" investments; they guarantee you a continuous income and are backed by the US government. There is also the concept of yield and price. That is what confuses most investors. It is very simple, when yield goes up; price goes down, and vice versa.

Treasury Bonds, Bills and Notes

The United States government issues several different kinds of bonds through the Bureau of the Public Debt, an agency of the U.S. Department of the Treasury. Treasury debt securities are classified according to their maturities:

Treasury Bills

have maturities of one year or less.

Treasury Notes

have maturities of two to ten years.

Treasury Bonds

have maturities greater than ten years.

Treasury Bonds, Bills, and Notes are all issued in face values of $1,000, though there are different purchase minimums for each type of security.