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A Crash Course in Treasury Securities

A Crash Course in Treasury Securities Fitzwilliams Financial

Ever wondered what treasury securities are? What about the difference between a treasury note, a treasury bond, and a treasury bill? Let’s uncover what these securities are so that you can have a sense of how they function and how they work for an investor.

What Are Treasury Securities Used For?

Treasury securities are basically debt products used to pay for public projects such as building schools and highways.[1] Treasury securities function similarly to loans–you loan the government some amount of money, and the government promises to pay back that money and some additional money (an interest rate).[1]

Interest rates are the main reason why people purchase bonds because interest rates are a form of financial return. But let’s discuss more on how treasury securities really work.

The Inner Workings of a Treasury Security

These securities have what is called “face values” or “par values.” Both of these terms mean the same thing. They are the amount the government guarantees to the owner of the bond at the maturity date.[1] So, for example, if you have a bond with a face value of $50, that bond will be worth at least $50 at the time of maturity. Think of it as a floor price. If you purchased that bond at $100 and tried to sell it, it couldn’t be sold for less than $50.

In addition, because the US Government backs these kinds of securities, they are commonly considered relatively safe investment options.[2] The US has never defaulted (been unable to pay) its Treasury security debts, so many have confidence that if they own a US treasury bond, they will get the amount listed on the face value if they wait until the bond is mature.[2]

Treasuries as an Investment

So, given that these kinds of investments carry relatively little risk, why doesn’t everyone just invest in these kinds of securities? The answer is that these kinds of investments often yield lower returns than more high-risk options.[2] So you’ll have to consider that if you are interested in investing in these kinds of securities, they don’t fit every portfolio or financial situation.

The Three Treasury Securities

There are three types of Treasury securities, and their main difference is their maturation length (though there are other differences between them as well, such as interest rate levels):

  1. Treasury bonds (sometimes called T-Bonds) mature after 20 or 30 years
  2. Treasury notes (sometimes called T-notes) have maturation periods of 2, 3, 5, 7, or 10 years
  3. Treasury bills (sometimes called T-bills) have a maturation period of anything less than 2 years [2]

When it comes to portfolio design, there are many, many options to consider, both high-risk and low-risk and long-term and short-term. And all of these options come with different considerations and are impacted by different financial factors.

If you are looking for someone to help guide you through the myriad of options available to you for investment, consider reaching out to one of our professionals for a complimentary review of your financial situation.

 

This article is intended for educational purposes only and is not intended to serve as the basis for any purchasing decision.

When people think about retirement planning, they often focus on one question: How much money will I need?

I believe another question can be just as important: What will that money be able to buy?

Inflation can gradually change the cost of groceries, housing, healthcare, transportation, travel, and many of the other expenses people may encounter throughout retirement. As those costs change, the purchasing power of a dollar may change with them.

That is why retirement planning can involve more than building an account balance or reaching a particular savings target. A comprehensive financial plan may also need to consider future

spending, retirement income needs, time horizon, inflation, investment strategy, and how someone’s financial circumstances could evolve over time.

In this Financial Forecast discussion, I explore how inflation can affect everyday expenses and why purchasing power may matter when evaluating a long-term retirement strategy. I also discuss why investors may benefit from looking at their financial decisions within the broader context of their goals rather than focusing on any one economic factor in isolation.

No one can know exactly what prices, markets, or economic conditions will look like years from now. Planning can instead involve evaluating different possibilities and building a strategy that may be able to adapt as circumstances change.

Watch the video to learn more about how inflation and changing expenses can fit into the retirement planning conversation.

Fitzwilliams Wealth Management, Inc. is an SEC registered investment advisor. FWM and Fitzwilliams Financial are affiliated companies. The content in this video is for informational purposes only and is not personalized investment advice or a solicitation to buy or sell any security. We do not provide tax or legal advice. Media appearances are for informational purposes only and do not constitute an endorsement. Investing involves risk.
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