U.S. Treasury Bonds, Notes & Bills

The US Treasury issues five types of debt securities. They differ from each other in their maturities, in the frequency with which they are offered, in the interest rates they pay, and the way in which the interest is paid. They share the reputation of being absolutely safe from default, though they're vulnerable to changes in market price and the impact of rising or falling interest rates.

The most common issues are bonds, with 30-year terms, notes, available with 2-, 3-, 5-, or 10-year terms, and bills, available with 4-, 13-, or 26-week terms. You can buy inflation-indexed notes known as TIPS (for Treasury Insurance Protected Securities) . They're available with various maturities. Finally, there are Treasury STRIPS, which are government zero-coupon bonds.

In late 2001, the Treasury stopped auctioning new 30-year bonds and 30-year inflation indexed bonds, although existing bonds continue to trade in the secondary market. In February 2006, the government once again began to offer new bonds. These long-term issues, sometimes called long bonds, typically pay higher interest than notes or bills, making them a more expensive way for the government to borrow.

Treasury issues are sold in $1,000 increments, and you can invest as little as $1,000 or as much as $1 million. You can buy and sell directly, through a program known as Treasury Direct, or through a broker.

Bills are auctioned every week. The 2-year notes are currently auctioned once a month, and the 5-and 10-year notes in February, May, August, and November. The frequency of those auctions changes from time to time, though. You can get current auction information by visiting the Treasury Direct website (www.treasurydirect.gov).

Like other debt securities, Treasurys are traded in the secondary market after issue, and their prices fluctuate to reflect changing demand. Details of those trades, in the order of maturity date, are reported regularly in tables like the one below.

READING THE TABLES
Rate is the percentage of par value paid as annual interest. The note maturing in March 04 pays 5 7/8% interest.

Maturity is the month and year the bond or note comes due. A range of rates for notes maturing in the same month indicate that those notes were of different durations — from two years to ten — or were issued at different times, or both.

Government Bonds

An n after the date indicates that the issue is a note as all the issues in this chart are.

Prices for Treasury issues are quoted as bid and asked instead of as a closing price. That's because these securities are traded over-the-counter, in thousands of private, one-on-one transactions. So it's not possible to determine the exact price of the last transaction. The best information that's available is the highest price offered — the bid — by buyers and the lowest price being asked by sellers at 4 pm Eastern time.

Treasury bond and note prices are measured in 32nds rather than 100ths of a point. Each 1/32 equals 31.25 cents, but the fractional part is dropped when the price is quoted. If a bond is selling at 100:2 (or 100 and 2/32), the price translates to $1,000.62.

For example, the note paying 5 7/8% that matures in March 04 has a bid price of 100:04 and an asked price of 100:06. So the bid price is $1,001.25 (4 x 31.25 cents = $1.25) and the asked price is $1,001.88 (6 x 31.25 cents = $1.875).

T-Bills Treasury bills, or T-bills, are sold originally at discount, and the difference between the price paid and par value is the dollar return, or interest. Full par value is repaid at maturity.

Dealers trade T-bills by bidding and asking discount percents. For example, the highest bid on the bill that matured February 4 was 4.73, meaning that the price offered was at a 4.73% discount. That is, the offer was $952.70 to buy a $1,000 bill. The asked price was $953.50, a 4.65% discount.

Bid change represents the change in the bid price given here and the bid price given in the tables for the previous trading day. The change is stated as a percent and preceded by a + if it is higher, and a – if it is lower. For example, the bid price on the February 04 bill was 0.14% of a point higher than on the previous day.

Ask yield is the yield to maturity. As with bonds and notes, it represents the relative value of the issue. The figure that gives the most accurate sense of what an investor makes on a T-bill is the coupon equivalent yield, or the percentage return resulting from dividing the dollar return by the amount paid. For example, a $1,000 bill sold for $960 has a coupon equivalent yield of 4.16%.

FIGURING COUPON YIELD

Dollar return on T-bill Cost of T-bill	=	Coupon yield equivalent

for example

$40 $960	=	4.16%

Trading in STRIPS is also reported, in a separate section of the table. STRIPS prices are always less than par, since they are issued at a deep discount. Those closer to maturity trade at higher prices, since they can be redeemed at par value when they come due. Compare the 99:27 bid price of the issue that matures in February with the 96.14 bid price for one that matures in November. Those with later maturity dates are also more volatile. Type describes the category of STRIP. ci indicates stripped coupon interest, np indicates a note with stripped principal, and bp, which doesn't appear in this example, indicates a bond with stripped principal.

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