A Treasury bond, often referred to simply as a "T-bond," is a type of fixed-income security issued by the government of a country, such as the United States Treasury Department in the case of U.S. Treasury bonds. These bonds are considered to be among the safest investments available because they are backed by the full faith and credit of the government. Here's a breakdown of what a Treasury bond entails:
- Issuer: The government issues Treasury bonds to raise funds for various purposes, such as financing government projects or paying off debts.
- Term: Treasury bonds have longer maturities compared to other types of Treasury securities, typically ranging from 10 to 30 years. This means that investors who purchase Treasury bonds are lending money to the government for an extended period.
- Coupon Payments: Treasury bonds pay periodic interest payments, known as coupon payments, typically every six months until the bond matures. The interest rate on Treasury bonds is fixed at the time of issuance, meaning investors know the exact amount they will receive in interest payments throughout the bond's life.
- Principal Repayment: At maturity, the government repays the full face value of the bond to the bondholder. This face value is also known as the par value and represents the original amount invested.
- Marketability: Treasury bonds are highly liquid and can be bought and sold on the secondary market before they reach maturity. Their market prices fluctuate based on changes in interest rates, inflation expectations, and other economic factors.
- Risk: Treasury bonds are considered to be virtually risk-free because they are backed by the government's ability to tax and print money. As a result, they typically offer lower yields compared to riskier investments.