Treasury bonds

Definition

Treasury bonds (T-bonds) are long-term debt securities issued by the U.S. Department of the Treasury to support government spending. They have maturities greater than 10 years and pay periodic interest until maturity, at which point the principal is repaid.

5 Must Know Facts For Your Next Test

1. The interest earned on Treasury bonds is exempt from state and local taxes but subject to federal income tax.
2. Treasury bonds are considered one of the safest investments because they are backed by the full faith and credit of the U.S. government.
3. Treasury bonds can be bought directly from the Treasury or through secondary markets.
4. They typically pay interest semi-annually, providing a steady income stream for investors.
5. Due to their safety, T-bonds usually offer lower yields compared to other long-term investments like corporate bonds.

Review Questions

• What makes Treasury bonds a safe investment?
• In what ways do investors earn returns from Treasury bonds?
• How are Treasury bond interest payments treated for tax purposes?

Related terms

Treasury Bills (T-Bills): Short-term securities issued by the U.S. Treasury with maturities of one year or less.

Treasury Notes (T-Notes): Medium-term securities issued by the U.S. Treasury with maturities ranging from 2 to 10 years.

Corporate Bonds: Debt securities issued by corporations to fund business activities, typically offering higher yields than government bonds due to higher risk.