Treasury Bond (T-Bond)

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What is a Treasury Bond (T‑Bond)?

A Treasury bond (T‑bond) is a long-term, fixed-interest debt security issued by the U.S. Department of the Treasury with maturities of 20 or 30 years. Backed by the full faith and credit of the U.S. government, T‑bonds are widely used as a low‑risk component of conservative portfolios and as a benchmark for other fixed‑income instruments.

Key features

  • Maturities: typically 20 or 30 years.
  • Coupon payments: fixed interest paid semiannually.
  • Denomination: minimum $100.
  • Taxation: interest is taxable at the federal level but exempt from state and local income taxes.
  • Liquidity: actively traded in the secondary market; can also be purchased at auction.
  • Minimum holding: newly issued T‑bonds must be held at least 45 days before being sold in the secondary market.

How T‑bonds are issued and traded

  • Issuance: T‑bonds are sold through regular Treasury auctions. The auction sets the bond’s price and yield.
  • Bidding options:
  • Non‑competitive bid: you accept the auction rate and are guaranteed the amount (maximum purchase typically limited for retail bidders).
  • Competitive bid: you specify the yield you want; acceptance depends on how that yield compares with auction results.
  • Secondary market: After issuance, T‑bonds trade among investors. Prices move inversely to prevailing yields—when market yields rise, bond prices fall, and vice versa.

Yields and the yield curve

T‑bond yields are an integral part of the Treasury yield curve, which plots yields across maturities. The yield curve is normally upward‑sloping (longer maturities offer higher yields). An inverted curve—shorter yields above longer yields—has historically been associated with recession risk.

Types of Treasuries (brief)

  • Treasury bills (T‑bills): maturities under 1 year, sold at a discount, no coupon.
  • Treasury notes (T‑notes): maturities 2–10 years, pay semiannual coupons.
  • Treasury bonds (T‑bonds): maturities 20–30 years, pay semiannual coupons.
  • Treasury Inflation‑Protected Securities (TIPS): principal adjusts with inflation.

Risks and considerations

  • Interest‑rate risk: long maturities magnify price sensitivity to rate changes.
  • Inflation risk: fixed coupons lose purchasing power if inflation rises (TIPS are designed to mitigate this).
  • Opportunity cost: because T‑bonds are conservative, yields are typically lower than riskier investments like stocks.
  • Credit risk: effectively negligible for U.S. Treasuries given government backing.

How to buy T‑bonds

  • Directly from the U.S. Treasury via TreasuryDirect.gov (auctions and reinvestments).
  • Through brokers, banks, or dealers (secondary market purchases).
  • Indirect exposure via ETFs or mutual funds that hold Treasury bonds.

Who should consider T‑bonds?

T‑bonds suit investors who want long‑term, predictable income with minimal credit risk—common uses include:
* Preserving capital in retirement portfolios.
* Matching long‑term liabilities (e.g., education or inheritance planning).
* Diversifying equity exposure during periods of market stress.

Conclusion

Treasury bonds offer long‑dated, government‑backed income with high liquidity and low credit risk. They are a conservative choice for investors prioritizing safety and stable cash flow, but they carry interest‑rate and inflation risks and typically yield less than higher‑risk assets. Choose T‑bonds when safety and predictable income outweigh the desire for higher returns.