SIE (Training Consultants v3.5, 2025): Ch. 2 Debt Securities, Sec. 7 – Federal Government Debt Issue

Treasury Bill (T-Bill)

Short-term U.S. government debt sold at a discount; matures in 1, 2, 3, 6, or 12 months; highly marketable and low risk.

Treasury Note

U.S. government debt with 2–10 year maturity; pays fixed semi-annual interest; exempt from state/local tax.

Treasury Bond

U.S. government debt with 10–30 year maturity; pays fixed semi-annual interest; exempt from state/local tax.

TIPS (Treasury Inflation-Protected Securities)

Treasury notes or bonds with interest and principal adjusted for inflation (CPI); preserves investor capital; interest is federally taxable but exempt from state/local tax.

STRIPS / Zero-Coupon Treasury Bonds / Treasury Receipts

Securities created by separating interest and principal of Treasury bonds; sold at deep discounts; interest accreted and taxed annually; all payments made at maturity.

Series EE Savings Bonds

Non-marketable federal debt issued at face value; interest taxed at redemption; redeemable after 1 year; not eligible as collateral.

Government Agency Securities

Issued by FNMA, FHLMC, GNMA; finance housing market; not direct obligations of U.S. government (except Ginnie Mae); generally low risk.

Regular Way Settlement (U.S. Gov’t Securities)

Business day after trade date; payment typically required in Federal Funds.

What are Treasury bills?

Short-term U.S. government debt sold at a discount, mature in 1, 2, 3, 6, or 12 months; highly liquid and low risk.

Are T-bills callable?

No.

How is T-bill discount taxed?

As interest income, not capital gains.

What are Treasury notes and bonds?

U.S. government debt with fixed semi-annual interest; notes mature 2–10 years, bonds 10–30 years; exempt from state/local tax.

How are Treasury notes/bonds quoted?

In points and 32nds of points; 1 point = $10.

What are TIPS?

Treasury securities with principal and interest adjusted for inflation based on CPI; interest paid semi-annually.

What is “phantom income” in TIPS?

Annual taxable appreciation of principal even though cash is not received.

What are STRIPS / Treasury Receipts?

Separated interest and principal of Treasury bonds sold at a discount; interest is accreted and taxed annually; all payments at maturity.

Why do investors buy STRIPS in retirement plans?

To lock in a rate of return without current tax liability.

What is the regular way settlement for U.S. government securities in the secondary market?

The business day after the trade date (T+1).

What are Series EE Savings Bonds?

Non-marketable federal debt issued at face value; interest taxed at redemption; redeemable after 1 year; cannot be used as collateral.

What are Government Agency Securities?

Issued by FNMA, FHLMC, GNMA; finance housing; generally low risk; quoted in 32nds; not direct U.S. government obligations (except Ginnie Mae).

Are Federal Agency issues exempt from Securities Act of 1933 registration?

Yes.

Do Federal Agency issues generally have higher yields than U.S. Treasury securities?

Yes.