A Treasury bond works by providing a fixed rate of interest, paid every six months, over a set term, typically either 20 or 30 years.
Understanding Treasury Bonds
Treasury bonds, issued by the U.S. Department of the Treasury, are a way for the government to borrow money. When you buy a Treasury bond, you are essentially lending money to the government, which promises to pay you back the face value of the bond at maturity, along with interest payments along the way.
Key Features of Treasury Bonds
- Fixed Interest Rate: Treasury bonds pay a fixed rate of interest, determined when the bond is initially issued. This means that you will receive the same interest payment every six months until the bond matures.
- Maturity Dates: Treasury bonds come with a maturity date, which is the date when the government will return the face value of the bond to the holder. These terms are usually either 20 or 30 years.
- Semi-Annual Payments: As the provided reference states, interest payments are made every six months.
- Marketability: Treasury bonds can be held until maturity or sold on the secondary market before they mature. Their price may fluctuate on the secondary market, depending on prevailing interest rates and other factors.
Buying and Holding Treasury Bonds
How to Purchase
Treasury bonds can be purchased through the government's online platform, TreasuryDirect, or through brokers.
Holding to Maturity
If you choose to hold a bond until it matures, you will receive the face value of the bond on the maturity date. As described in the reference, you will also receive semi-annual interest payments at the fixed rate specified when you purchased the bond.
Selling Before Maturity
You have the option to sell your Treasury bond before its maturity date. However, the market value of the bond may be different than the face value that you paid. If interest rates have increased since you bought the bond, it will typically be sold at a discount. Conversely, if interest rates have decreased, the bond may sell at a premium.
Treasury Bonds vs. U.S. Savings Bonds
It is important to distinguish Treasury bonds from other types of government bonds, such as U.S. Savings Bonds. According to the provided reference, EE Bonds, I Bonds, and HH Bonds are examples of U.S. savings bonds, not Treasury bonds. While they are both issued by the U.S. Treasury, savings bonds typically have different interest rate structures and redemption rules.
| Feature | Treasury Bonds | Savings Bonds (e.g., EE, I) |
|---|---|---|
| Interest | Fixed semi-annual payments | Variable or fixed, different rules |
| Maturity | 20 or 30 years | Varies |
| Marketable | Yes, can be sold before maturity | Generally not easily tradable |
In summary, a Treasury bond offers a predictable stream of income via fixed semi-annual payments, for a term of 20 to 30 years, and can be either held to maturity or sold on the secondary market.
