Investment Analysis: U.S. Treasury Securities Overview

Bonds

Debt securities issued by a borrower to obtain funds, bought and held by investors to earn a return. Most bonds pay the face value upon maturity plus regular coupon payments.

U.S. Treasury Market

Deepest and most liquid government securities market in the world, primary means of financing the US government, considered a safe and secure investment option because the full faith and credit of the U.S. government guarantees that interest and principal payments will be paid on time.

Primary Market

U.S. Treasury auctions debt (Treasury Securities) to the public.

Secondary Market

Trading through brokers/dealers.

Treasury Debt Management Goal

To meet the financing needs of the federal government at the Lowest Cost Over Time.

Regular and Predictable

Treasury tries to operate its debt management policies in a 'Regular and Predictable' manner.

Marketable Treasury Securities

Current types include Bills, Notes, Bonds, Treasury Inflation-Protected Securities (TIPS), and Floating Rate Notes (FRN).

Bills

Maturities less than 1-year, sold at a discount to par, returns par at maturity.

Notes

Maturities from 1-year to 10-years, semi-annual coupon payments, returns par at maturity.

Bonds

Maturities greater than 10-years, semi-annual coupon payments, returns par at maturity.

Treasury Inflation-Protected Securities (TIPS)

Currently issuing maturities of 5-, 10-, and 30-years. TIPS have a 'Real Rate Coupon.' Semi-annual coupon payments applied to the inflation-adjusted principal on each interest payment date. Principal is indexed to NSA-CPI. Returns inflation-adjusted principal at maturity (or par amount if that is greater).

Floating Rate Notes (FRN)

2-year maturity with quarterly interest payments and weekly reset, indexed to the 13-week T-bill auction result.

Treasury Auction Process

Designed to minimize cost of financing national debt by promoting broad, competitive bidding at auctions and liquid secondary market trading in Treasury securities post-auction.

Nominal Securities Frequency

The schedule for issuing nominal securities including 4-week bills weekly on Thursdays, 8-week bills weekly on Thursdays, 13-week bills weekly on Mondays, 17-week bills weekly on Wednesdays, 26-week bills weekly on Mondays, 52-week bills every 4 weeks on Tuesdays, 2-year notes monthly at the end of the month, 3-year notes monthly in the middle of the month, 5-year notes monthly at the end of the month, 7-year notes monthly at the end of the month, 10-year notes monthly in the middle of the month, 20-year bonds monthly at the end of the month but auction closer to mid-month, and 30-year bonds monthly in the middle of the month.

Treasury Inflation Protected Securities (TIPS)

Includes 5-year TIPS issued four times per year (Apr, Jun, Oct, Dec), 10-year TIPS issued six times per year (Jan, Mar, May, Jul, Sep, Nov), and 30-year TIPS issued two times per year (Feb, Aug).

Floating Rate Notes (FRNs)

Includes 2-Year FRN issued monthly at the end of the month.

Competitive Bid

A bid where the bidder specifies the amount of the security being auctioned and the corresponding rate, yield, or discount margin that is acceptable, with the possibility of receiving full, part, or none of the quantity bid for.

Noncompetitive Bid

A bid where the bidder agrees to accept the rate, yield, or discount margin determined at auction and is awarded the full amount of the bid at that rate.

Maximum Award for Competitive Bid

The maximum award is 35 percent of the offering amount less the bidder's net long position as reportable under §356.

Limit for Noncompetitive Bids

Noncompetitive bids are limited to $10 million (par) per auction.

Single Price Auction

All securities are awarded at the price equivalent to the highest accepted yield, discount rate, or discount margin at which bids were accepted.

Noncompetitive Bids Acceptance

All non-competitive bids are accepted in full first before allocating the remainder to competitive bidders.

Proration of Bids

When necessary, bids are prorated at the highest accepted yield, discount rate, or discount margin.

Types of Bids

Bids are in yields for all Treasury bonds and notes, real yields for TIPS, discount rates for Treasury bills, and discount margins for FRNs.

Treasury Issuance Calendar

A schedule detailing the frequency of issuance for various Treasury securities as of January 2025.

4-week bills

Issued weekly on Thursdays.

8-week bills

Issued weekly on Thursdays.

13-week bills

Issued weekly on Mondays.

17-week bills

Issued weekly on Wednesdays.

26-week bills

Issued weekly on Mondays.

52-week bills

Issued every 4 weeks on Tuesdays.

2-year notes

Issued monthly at the end of the month.

3-year notes

Issued monthly in the middle of the month.

5-year notes

Issued monthly at the end of the month.

7-year notes

Issued monthly at the end of the month.

10-year notes

Issued monthly in the middle of the month.

20-year bonds

Issued monthly at the end of the month but auction closer to mid-month.

30-year bonds

Issued monthly in the middle of the month.

Primary Dealers

A critical part of the primary market for Treasury securities required to participate substantially in every Treasury auction.

Investment Funds

A group that includes mutual funds, money market funds, hedge funds, money managers, and investment advisors, often large buyers at Treasury auctions.

Federal Reserve

Does not bid competitively in Treasury auctions but can roll its maturing securities at the auction, treated as an auction 'add on.'

SOMA

Federal Reserve Banks System Open Market Account, through which the Fed can acquire securities in the secondary market.

Auction Allotments

Distribution of Treasury securities among different investor classes at auctions, measured in billions of dollars.

Pension Funds

A type of investment fund that may participate in Treasury auctions.

Federal Dealers

Entities that participate in the Treasury auction process, typically large financial institutions.

Retirement Funds

Investment vehicles that may include pension funds and are often buyers at Treasury auctions.

Foreign Institutions

Entities outside the U.S. that may participate in Treasury auctions.

Individuals

Private buyers who may purchase Treasury securities at auctions.

Brokers

Intermediaries that may facilitate the purchase of Treasury securities for clients.

Insurance Companies

Financial institutions that may invest in Treasury securities as part of their portfolio.

Marketable Treasury Coupon Securities

Treasury securities that pay interest and can be bought and sold in the market.

Auction

A process where Treasury securities are sold to the highest bidders.

2-Year Note

A debt security with a maturity of 2 years, typically paying interest.

5-Year TIPS Note

A 5-year Treasury Inflation-Protected Security that adjusts for inflation.

5-Year Note

A debt security with a maturity of 5 years, typically paying interest.

7-Year Note

A debt security with a maturity of 7 years, typically paying interest.

20-Year Bond

A long-term debt security with a maturity of 20 years.

2-Year FRN

A 2-year Floating Rate Note that pays interest based on a benchmark rate.

3-Year Note

A debt security with a maturity of 3 years, typically paying interest.

10-Year Note

A debt security with a maturity of 10 years, typically paying interest.

30-Year Bond

A long-term debt security with a maturity of 30 years.

10-Year TIPS Note

A 10-year Treasury Inflation-Protected Security that adjusts for inflation.

Foreign Holdings of US Treasury Securities

US Treasuries are widely held by foreign official entities and private investors in many different countries.

SOMA Holdings of Domestic Securities

The System Open Market Account's holdings of domestic securities.

Interest Rate

The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.

Maturity

The date on which a debt security is due to be paid back.

Inflation Protection

A feature of certain securities that adjusts the principal or interest payments based on inflation.

Benchmark Rate

A standard interest rate used as a reference point for other rates.

Debt Security

A financial instrument that represents a loan made by an investor to a borrower.

Treasury Security

A government debt instrument issued by the U.S. Department of the Treasury.

Private Investors

Individuals or entities that invest their own money in securities.

Official Entities

Governmental organizations that hold financial assets.

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Enhanced Metafile

A graphics file format used for vector graphics.

Treasury market

The safety and liquidity of the Treasury market make it very attractive to global investors.

Treasury International Capital (TIC) System

Treasury maintains detailed statistics on the global distribution of Treasury holdings through the Treasury International Capital (TIC) System.

Treasury Inflation-Protected Securities (TIPS)

Currently issuing maturities of 5-, 10- and 30-years. TIPS have a 'Real Rate Coupon.' Semi-annual coupon payments applied to the inflation-adjusted principal on each interest payment date. Principal is indexed to NSA-CPI. Returns inflation-adjusted principal at maturity (or par amount if that is greater).

Floating Rate Notes (FRN)

2-year maturity. Quarterly interest payments with weekly reset. Indexed to the 13-week T-bill auction result. Returns par at maturity.

Maturity date

The date on which the principal amount of the bond becomes due and is repaid to the investor.

Coupon interest rate

Determined at auction and is the percentage rate of interest paid on the bond's face value every year.

Yield to Maturity

The internal rate of return or the interest rate that will make the present value of the cash flows equal to the price.

Par value

The amount that an issuer agrees to pay upon redemption at the maturity date.

Bond prices

Quoted as a percentage of par value (i.e. show the price per $100 of the security's face value).

Price quote example

A $100 face value bond trading at a price of $93 would be quoted as 93.

Price quotes

In dollars and 32nds of a dollar (and fractions of a 32nd).

Price quote format

The part of the price quote prior to the dash is dollars and the part after the dash is '32nds' of a dollar.

Example 1 price quote

A Treasury bond price quote of 98-20 means 98 dollars plus 20/32nds of a dollar or a price of 98 + 20/32 = $98.625 for a $100 face value Treasury bond.

Example 2 price quote

A Treasury bond price quote of 98-20+ means 98 dollars plus 20.5/32nds of a dollar or a price of 98 + 20.5/32 = $98.640625 for a $100 face value Treasury bond.

Example 3 price quote

A Treasury bond price quote of 98-202 means 98 dollars plus 20.25/32nds of a dollar or a price of 98 + 20.25/32 = $98.6328125 for a $100 face value Treasury bond.

Treasury bond price quote

A representation of the price of a Treasury bond, indicating the dollar amount and fractions of a 32nd.

Bid price

The highest price where a buyer is willing to buy the security.

Ask price

The lowest price where a seller is willing to sell the security.

Bid/ask spread

The difference between the bid price and ask price, often used as a measure of liquidity.

Liquidity

The degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's price.

Premium bond

A bond where the market price is greater than the par value.

Par bond

A bond where the market price is equal to the par value.

Discount bond

A bond where the market price is less than the par value.

Flat price

The quoted market price for a bond that does not include accrued interest.

Full price

The flat price plus accrued interest; the total amount you must pay when purchasing a bond.