A treasury bond which is also commonly referred to as the T- bond is basically a debt security of the US government which has a fixed interest and is marketable with a maturity period of more than 10 years.
Understanding the Treasury bond
A treasury bond is a long term debt security which has a fixed interest rate for the entire given duration of time. This type of bond generally matures after 10 years and sometimes even more than that. The interest payments that are made in the T bonds are generally on a semi- annual basis. Also, the income that is received is taxed only at the federal level. The T bonds are generally considered to be the safest bonds when it comes to marketable investment. These types of bonds are generally famous with the title of being “primarily risk free” in the market space. Since these are issued by the government of the US, there are very slight chances of the risk of default.
These types of bonds are for a longer period of time and are backed by the government. Thus, these are considered to be one of the safest bonds of them all. These T bonds have an active secondary market. The T bond is just one among the four different types of debts that is mainly issued by the US department of the treasury. This is done so that the spending activities of the government can be financed. This type of bond is considered as a benchmark to the comparable fixed income categories as they are risk free in virtual terms. This is because since it is backed by the government, the full payments of these bonds are ensured as the government can raise taxes or increase the revenues so that the payment is done. One more reason as to why these are considered as a benchmark with respect to the fixed income categories is that the rate of investment offered by these are risk free with the lowest return of the categories.
When it comes to the fixed income market, it becomes easy to form a curve that includes a range of investment that is offered by the US government.
The maturity ranges of treasury bonds
Now if we talk about the maturity period of the treasury bonds, it can range from 10 years to 30 years. Usually $1000 is the minimum denomination with which these bonds are issued. Also, the payment of the coupons on such bonds is done on a semi- annual basis. Auction is one of the most basic approaches for selling these bonds. After the auction, the bonds can be sold in the secondary markets. Due to the active secondary market, the investment becomes liquid to a great extent. Also, there are chances for the fluctuation of the in the prices of these T bonds especially in the trading sector.