Treasury Securities

Treasury Securities are debt instruments issued by the U.S. Department of the Treasury to finance government operations and debt obligations. They are backed by the full faith and credit of the U.S. government, making them among the safest investments available.

Types of Treasury Securities

Treasury Bills (T-Bills)

Short-term securities with maturities of 4, 8, 13, 26, or 52 weeks. Sold at a discount and redeemed at face value when they mature.

Treasury Notes

Issued with 2, 3, 5, 7, or 10-year terms. Pay fixed interest every six months.

Treasury Bonds

Longer-term securities with 20- and 30-year maturities. Like notes, they pay interest semiannually.

Floating Rate Notes (FRNs)

2-year securities with interest payments that adjust quarterly based on 13-week T-Bill auction rates.

Treasury Inflation-Protected Securities (TIPS)

Issued with 5, 10, or 30-year maturities. The principal adjusts with inflation (based on the CPI), and interest is paid every six months on the adjusted principal.

Separate Trading of Registered Interest and Principal of Securities (STRIPS)

Let investors buy or sell just the interest or principal portion of a Treasury Note, Bond, or TIPS. Only available through brokers or financial institutions.

Liquidity Considerations

The liquidity of a Treasury Security depends on where it was purchased:

• TreasuryDirect: Securities must be held to maturity and are only available at the end of their term.
• Brokerages: Securities can be sold before maturity on the secondary market, though prices may fluctuate based on interest rates and market demand.

Tax Treatment

All Treasury securities are exempt from state and local income taxes. The semiannual interest payments and any inflation-based increases to the principal of TIPS are subject to federal income tax, even if you don’t sell the bond. For other Treasury securities, the interest income is taxed at teh federal level in the year it’s received.