4 different types of marketable US
US treasury securities are one of the popular investments; which is considered a very low-risk (safe) investment. Following are the 4 types of securities currently available.
1. Treasury bills
- Short term securities with maturation less than a year.
- Sold on discount on the face value. The investor gets the face value on maturity.
- Investor's return = FACE VALUE - DISCOUNTED PRICE
2. Treasury Notes and Bonds
- Long term securities. T-Note is issued with maturation between 1-10 years. T-bond is issue for more than 10 years.
- The securities are sold on face value and interest is paid semi-annually.
- The interest amount is the return to the investors.
3. STRIPS or Zero Coupon Bonds (ZCB)
- Similar to T-Bills, sold on discount on the face value.
- Like T-notes, its maturing period is longer than T-Bills.
- This instrument is very sensitive to interest rates. As rates change, the price of a ZCB will change more than that of any other bond with similar maturity.
4. Treasury Inflation Protection Securities (TIPS)
- The interest rate paid by TIPS is not fixed. It is linked with Inflation; i.e. interest rate = "Inflation + rate".
E.g. if the inflation is 3%; then a TIPS with 2% rate will pay 5% interest.
- The rate is adjusted semi-annually according to the inflation change.
- Since the return changes with inflation, the value to the security remains stable.
Contents are compiled from different resources. Respective copyrights are acknowledged.
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