United States Treasury security
United States Treasury security is an
IOU from the US Government. It
is a government debt instrument issued by the United States Department
of the Treasury to finance government spending as an alternative to
taxation. Treasury securities are often referred to simply as
Treasuries. Since 2012 the management of government debt has been
arranged by the Bureau of the Fiscal Service, succeeding the Bureau of
the Public Debt.
There are four types of marketable treasury securities: Treasury
bills, Treasury notes, Treasury bonds, and Treasury Inflation
Protected Securities (TIPS). There are also several types of
non-marketable treasury securities including State and Local
Government Series (SLGS), Government Account Series debt issued to
government-managed trust funds, and savings bonds. All of the
marketable Treasury securities are very liquid and are heavily traded
on the secondary market. The non-marketable securities (such as
savings bonds) are issued to subscribers and cannot be transferred
through market sales.
1 Backing of US currency
3 Marketable securities
3.1 Directly issued by the United States government
3.1.1 Treasury bill
3.1.2 Treasury note
3.1.3 Treasury bond
3.2 Created by the financial industry
4 Nonmarketable securities
4.1 Zero-Percent Certificate of Indebtedness
4.2 Government Account Series
4.3 U.S. savings bonds
4.3.1 Series EE
4.3.2 Series I
4.3.3 Series HH
6 See also
8 External links
Backing of US currency
Federal Reserve Banks are required to hold collateral equal in value
Federal Reserve notes
Federal Reserve notes that the
Federal Reserve Bank
Federal Reserve Bank puts into
circulation. This collateral is chiefly held in the form of U.S.
Treasury debt and government-sponsored enterprise securities.
To finance the costs of World War I, the U.S. Government increased
income taxes (see the War Revenue Act of 1917) and government debt,
called war bonds. Traditionally, the government borrowed from other
countries, but there were no other countries from which to borrow in
The Treasury raised funding throughout the war by selling $21.5
billion in 'Liberty bonds.' These bonds were sold at subscription
where officials created coupon price and then sold it at par value. At
this price, subscriptions could be filled in as little as one day, but
usually remained open for several weeks, depending on demand for the
After the war, the Liberty bonds were reaching maturity, but the
Treasury was unable to pay each down fully with only limited budget
surpluses. The resolution to this problem was to refinance the debt
with variable short and medium-term maturities. Again the Treasury
issued debt through fixed-price subscription, where both the coupon
and the price of the debt were dictated by the Treasury.
The problems with debt issuance became apparent in the late 1920s. The
system suffered from chronic over-subscription, where interest rates
were so attractive that there were more purchasers of debt than
supplied by the government. This indicated that the government was
paying too much for debt. As government debt was undervalued, debt
purchasers could buy from the government and immediately sell to
another market participant at a higher price.
In 1929, the US Treasury shifted from the fixed-price subscription
system to a system of auctioning where 'Treasury Bills' would be sold
to the highest bidder. Securities were then issued on a pro rata
system where securities would be allocated to the highest bidder until
their demand was full. If more treasuries were supplied by the
government, they would then be allocated to the next highest bidder.
This system allowed the market, rather than the government, to set the
price. On December 10, 1929, the Treasury issued its first auction.
The result was the issuing of $224 million three-month bills. The
highest bid was at 99.310 with the lowest bid accepted at 99.152.
Directly issued by the United States government
1969 $100,000 Treasury Bill
"Treasury bill" redirects here. Note that the
Bank of England
Bank of England issues
these in the United Kingdom.
Treasury bills (or T-bills) mature in one year or less. Like
zero-coupon bonds, they do not pay interest prior to maturity; instead
they are sold at a discount of the par value to create a positive
yield to maturity.
Regular weekly T-Bills are commonly issued with maturity dates of 28
days (or 4 weeks, about a month), 91 days (or 13 weeks, about 3
months), 182 days (or 26 weeks, about 6 months), and 364 days (or 52
weeks, about 1 year). Treasury bills are sold by single-price auctions
held weekly. Offering amounts for 13-week and 26-week bills are
announced each Thursday for auction, usually at 11:30 a.m., on
the following Monday and settlement, or issuance, on Thursday.
Offering amounts for 4-week bills are announced on Monday for auction
the next day, Tuesday, usually at 11:30 a.m., and issuance on
Thursday. Offering amounts for 52-week bills are announced every
fourth Thursday for auction the next Tuesday, usually at 11:30 am, and
issuance on Thursday. Purchase orders at
TreasuryDirect must be
entered before 11:00 on the Monday of the auction. The minimum
purchase, effective April 7, 2008, is $100. (This amount formerly had
been $1,000.) Mature T-bills are also redeemed on each Thursday. Banks
and financial institutions, especially primary dealers, are the
largest purchasers of T-bills.
Like other securities, individual issues of T-bills are identified
with a unique
CUSIP number. The 13-week bill issued three months after
a 26-week bill is considered a re-opening of the 26-week bill and is
given the same
CUSIP number. The 4-week bill issued two months after
that and maturing on the same day is also considered a re-opening of
the 26-week bill and shares the same
CUSIP number. For example, the
26-week bill issued on March 22, 2007, and maturing on September 20,
2007, has the same
CUSIP number (912795A27) as the 13-week bill issued
on June 21, 2007, and maturing on September 20, 2007, and as the
4-week bill issued on August 23, 2007 that matures on September 20,
During periods when Treasury cash balances are particularly low, the
Treasury may sell cash management bills (or CMBs). These are sold at a
discount and by auction just like weekly Treasury bills. They differ
in that they are irregular in amount, term (often less than 21 days),
and day of the week for auction, issuance, and maturity. When CMBs
mature on the same day as a regular weekly bill, usually Thursday,
they are said to be on-cycle. The CMB is considered another reopening
of the bill and has the same CUSIP. When CMBs mature on any other day,
they are off-cycle and have a different
Treasury bills are quoted for purchase and sale in the secondary
market on an annualized discount percentage, or basis. General
calculation for the discount yield for Treasury bills is:
days till maturity
displaystyle text discount yield ,(%)= frac text face value
- text purchase price text purchase value times frac 360 text
days till maturity times 100,%
This is the modern usage of "Treasury Note" in the U.S.; for the
earlier meanings, see Treasury Note (other).
1976 $5,000 Treasury Note
Treasury notes (or T-notes) mature in two to ten years, have a coupon
payment every six months, and have denominations of $1,000. In the
basic transaction, one buys a $1,000 T-Note for $950, collects
interest of 3% per year over 10 years, which comes to $30 yearly, and
at the end of the 10 years cashes it in for $1000. So, $950 over the
course of 10 years becomes $1300.
T-Notes and T-Bonds are quoted on the secondary market at percentage
of par in thirty-seconds of a point (n/32 of a point, for n =
1,2,3,...). Thus, for example, a quote of 95:07 on a note indicates
that it is trading at a discount: $952.22 (i.e., 95 + 7/32%) for a
$1,000 bond. (Several different notations may be used for bond price
quotes. The example of 95 and 7/32 points may be written as 95:07, or
95-07, or 95'07, or decimalized as 95.21875.) Other notation includes
a +, which indicates 1/64 points and a third digit may be specified to
represent 1/256 points. Examples include 95:07+ which equates to (95 +
7/32 + 1/64) and 95:073 which equates to (95 + 7/32 + 3/256). Notation
such as 95:073+ is not typically used.
The 10-year Treasury note has become the security most frequently
quoted when discussing the performance of the U.S. government bond
market and is used to convey the market's take on longer-term
"U.S. Bonds" redirects here. For the singer/performer, see Gary U.S.
1979 $10,000 Treasury Bond
Treasury bonds (T-Bonds, or the long bond) have the longest maturity,
from twenty years to thirty years. They have a coupon payment every
six months like T-Notes, and are commonly issued with maturity of
The U.S. Federal government suspended issuing 30-year Treasury bonds
for four years from February 18, 2002 to February 9, 2006. As the
U.S. government used budget surpluses to pay down Federal debt in the
late 1990s, the 10-year Treasury note began to replace the 30-year
Treasury bond as the general, most-followed metric of the U.S. bond
market. However, because of demand from pension funds and large,
long-term institutional investors, along with a need to diversify the
Treasury's liabilities—and also because the flatter yield curve
meant that the opportunity cost of selling long-dated debt had
dropped—the 30-year Treasury bond was re-introduced in February 2006
and is now issued quarterly.
Treasury Inflation-Protected Securities (or TIPS) are the
inflation-indexed bonds issued by the U.S. Treasury. The principal is
adjusted to the
Consumer Price Index
Consumer Price Index (CPI), the commonly used measure
of inflation. When the CPI rises, the principal adjusts upward. If the
index falls, the principal adjusts downwards. The coupon rate is
constant, but generates a different amount of interest when multiplied
by the inflation-adjusted principal, thus protecting the holder
against the official inflation rate (as asserted by the CPI). TIPS
were introduced in 1997. TIPS are currently offered in 5-year,
10-year and 30-year maturities.
Created by the financial industry
Separate Trading of Registered
Interest and Principal Securities (or
STRIPS) are T-Notes, T-Bonds and TIPS whose interest and principal
portions of the security have been separated, or "stripped"; these may
then be sold separately (in units of $100 face value) in the secondary
market. The name derives from the days before computerization, when
paper bonds were physically traded; traders would literally tear the
interest coupons off of paper securities for separate resale.
The government does not directly issue STRIPS; they are formed by
investment banks or brokerage firms, but the government does register
STRIPS in its book-entry system. STRIPS must be purchased through a
broker, and cannot be purchased from TreasuryDirect.
STRIPS are used by the Treasury and split into individual principal
and interest payments, which get resold in the form of zero-coupon
bonds. Because they then pay no interest, there is not any interest to
re-invest, and so there is no reinvestment risk with STRIPS.
Zero-Percent Certificate of Indebtedness
The "Certificate of Indebtedness" (C of I) is a Treasury security that
does not earn any interest and has no fixed maturity. It can only be
held in a
TreasuryDirect account and bought or sold directly through
the Treasury. It is intended to be used as a source of funds for
traditional Treasury security purchases. Purchases and redemptions can
be made at any time.
Government Account Series
Government Account Series Treasurys (GAS) are the principal form of
intragovernmental debt holdings.
U.S. savings bonds
Main article: U.S. Savings bonds
Savings bonds were created to finance World War II. Unlike Treasury
Bonds, they are not marketable. In 2002, the Treasury Department
started changing the savings bond program by lowering interest rates
and closing its marketing offices. As of January 1, 2012,
financial institutions no longer sell paper savings bonds. The
annual (calendar year) purchase limit for electronic Series EE and
Series I savings bonds is $10,000 for each series. The limit is
applied per Social Security Number (SSN) or Taxpayer Identification
Number (TIN). For paper Series I Savings Bonds purchased through IRS
tax refunds (see below), the purchase limit is $5,000 per SSN, which
is in addition to the online purchase limit.
$1,000 Series EE savings bond featuring Benjamin Franklin
Series EE bonds reach maturity (double in value) 20 years from
issuance though they continue to earn interest for a total of 30
Interest accrues monthly and is paid when the holder cashes the
bond. For bonds issued before May 2005 the rate of interest is
recomputed every six months at 90% of the average five-year Treasury
yield for the preceding six months. Bonds issued in May 2005 or later
pay a fixed interest rate for the life of the bond (0.10% in November
2016). At 0.10%, a $100 bond would be worth about $102 just before
20 years, but will be adjusted to the maturity value of $200 at 20
years (giving it an effective rate of 3.5%) then continue to earn the
fixed rate for 10 more years. In the space of a decade, interest
dropped from well over 5% to 0.7% for new bonds in 2009. Paper EE
bonds, last sold in 2011, were issued with a face value of twice their
purchase price, so a $100 bond could be bought for $50, but would not
be worth $100 until maturity.
1975 ad for U.S. saving bonds.
Series I bonds have a variable yield based on inflation. The interest
rate consists of two components: the first is a fixed rate which will
remain constant over the life of the bond. The second component is a
variable rate reset every six months from the time the bond is
purchased based on the current inflation rate. New rates are published
on May 1 and November 1 of every year. The fixed rate is
determined by the Treasury Department (0.00% in May 2017); the
variable component is based on the
Consumer Price Index
Consumer Price Index (CPI-U) from a
six-month period ending one month prior to the reset time (0.98% in
May 2017, reflecting the CPI-U from September to March, published in
mid-April, for an effective annual inflation rate of 1.96%). As an
example, if someone purchases a bond in February, they will lock in
the current fixed rate forever, but the inflation component will be
based on the rate published the previous November. In August, six
months after the purchase month, the inflation component will now
change to the rate that was published in May while the fixed rate
Interest accrues monthly, in full, on the first day of
the month (i.e., a Savings Bond will have the same value on July 1 as
on July 31, but on August 1 its value will increase for the August
interest accrual). The fixed portion of the rate has varied from as
much as 3.6% to 0%. During times of deflation (during part of 2009 and
again in 2015), the negative inflation portion can wipe out the return
of the fixed portion, but the combined rate cannot go below 0% and the
bond will not lose value.
Besides being available for purchase online, taxpayers may purchase
I-bonds using a portion of their tax refund via IRS Form 8888
Allocation of Refund. Bonds purchased using Form 8888 are issued as
paper bonds and mailed to the address listed on the tax return.
Taxpayers may purchase bonds for themselves or other persons such as
children or grandchildren. The remainder of the taxpayer's refund may
be received by direct deposit or check.
Series HH bonds have been discontinued. Unlike Series EE and I bonds,
they do not increase in value, but pay interest every six months for
20 years. When they are cashed in or mature they are still worth face
value. Issuance of Series HH bonds ended August 31, 2004.
Further information: National debt of the United States § Debt
For the quantitative easing policy, the Federal Reserve holdings of
U.S. Treasuries increased from $750 billion in 2007 to over $1.7
trillion as of end-March 2013. On September 13, 2012, in an
11-to-1 vote, the Federal Reserve announced they were also buying $45
billion in long-term Treasuries each month on top of the $40 billion a
month in mortgage-backed securities. The program is called QE3 because
it is the Fed's third try at quantitative easing. The result is
that an enormous proportion of the US debt is actually owed from the
Treasury to the Federal Reserve; according to a 1947 law, the Federal
Reserve must return this money to the Treasury each year, after
After the Federal Reserve buys Treasury securities on the open market
as part of the QE program (as it is prohibited from buying them
directly from the US Treasury at auction), the Federal Reserve
receives its interest thereafter, instead of the private sector
seller. The amount of that interest payment is thereby removed from
the economy. In 2012, the Federal Reserve collected nearly $82 billion
in interest profit from its treasury securities purchases. (Page 302
of the 2013 "100th Annual Report") After expenses (district
Federal Reserve property taxes, salaries, facilities management,
dividends, etc.), it returns all money to the US Treasury.
In 2013, the Federal Reserve earned $91,149,953,000. It paid the US
Treasury $79,633,271,000, not including the $701,522,000 it paid
Treasury's Bureau of Printing and Engraving to create walking-around
physical cash and currency. (Page 302 of the 2013 "100th Annual
Further information: National debt of the United States
§ Foreign holders of US Treasury securities
As of June 30, 2016, the foreign holders of at least $150 billion
of U.S. Treasury securities are:
since June 2015)
since June 2015)
since June 2015)
Est. ratio to GDP
(where 2015 values
Chiasso financial smuggling case
Strong dollar policy
War savings stamps
^ "Is U.S. currency still backed by gold?"
^ a b c d e Kenneth D. Garbade (July 2008). "Why The U.S. Treasury
Began Auctioning Treasury Bills in 1929" (PDF). Federal Reserve Bank
of New York, Vol. 14, No. 1. Retrieved April 27, 2011.
^ Treasury Bills, TreasuryDirect.gov. U.S. Department of Treasury,
Bureau of Public Debt. April 22, 2011. Retrieved May 24, 2011.
^ "Treasury Reintroduces 30-Year Bond". U.S. Federal Reserve. April
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^ "Treasury Inflation-Protected Securities(TIPS)". TreasuryDirect.gov.
April 7, 2011. Retrieved April 27, 2011.
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System" (PDF). U.S. Department of the Treasury. Bureau of the Public
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Retrieved May 17, 2011.
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treasurydirect.gov. September 30, 2009. Retrieved November 4,
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savings bonds". The San Francisco Chronicle. Hearst. Retrieved
February 14, 2007.
^ Pender, Kathleen (July 13, 2011). "Treasury takes new whack at
savings bonds". Treasury Department News Release. Treasury. Retrieved
November 25, 2011.
^ "Treasury Department Sets Online Savings Bond Annual Purchase Limit
at $10,000 per Series". Treasury. January 4, 2012. Retrieved January
^ a b
TreasuryDirect Savings Bond Rate Press Release
^ "Series EE/E Savings Bond Rates". U.S. Department of the Treasury.
Retrieved July 19, 2008.
^ a b "I Savings Bonds Rates & Terms". TreasuryDirect.gov.
November 1, 2015. Retrieved June 6, 2017.
^ "Use Your Federal Tax Refund to Buy Savings Bonds". irs.gov.
February 1, 2011. Retrieved April 27, 2011.
^ "Individual - HH/H Savings Bonds". Treasurydirect.gov. Retrieved
March 25, 2010.
^ "Government Will Honor Discontinued HH Bonds". Los Angeles Times.
Articles.latimes.com. September 14, 2003. Retrieved March 25,
^ Federal Reserve Statistics Release
^ a b 100th Annual Report 2013 (PDF). Board of Governors of the
Federal Reserve System. 2013.
^ "Foreign Portfolio Holdings of U.S. Securities as of 6/30/2016"
(PDF). U.S. Department of the Treasury. April 28, 2017.
^ "Foreign Portfolio Holdings of U.S. Securities as of 6/30/2015"
(PDF). U.S. Department of the Treasury. May 31, 2016.
^ The World Factbook – Field Listing :: GDP (official exchange
^ The World Factbook – Field Listing :: GDP (purchasing power
China figures only
Bureau of the Public Debt: US Savings Bonds Online
Major Foreign Holders of U.S. Treasury Bonds
U.S. Bureau of the Public Debt: Series A, B, C, D, E, F, G, H, J, and
K Savings Bonds and Savings Notes.
Features and Risks of Treasury
Inflation Protection Securities
U.S. Treasury Resource Center - Treasury International Capital (TIC)
10 Year Treasury Yield Chart
Types of bonds by issuer
Emerging market debt
Types of bonds by payout
Auction rate security
Contingent convertible bond
Fixed rate bond
Floating rate note
Inverse floating rate note
Reverse convertible securities
Yield to maturity
Collateralized debt obligation
Collateralized mortgage obligation
Commercial mortgage-backed security
Commercial Mortgage Securities Association (CMSA)
International Capital Market Association (ICMA)
Securities Industry and Financial Markets A