What is a Treasury Bond?

A Treasury Bond is a long term fixed income security offered by the United States government with maturities greater than 10 years.

A Treasury Bond pays a fixed rate of interest every 6 months, based on the yield of the bond at its auction.

An investor buys a Treasury Bond at a price that may be above, below or at par (Par is $100 for Treasury Bonds). When the bond matures, you are paid back its par value.

For more detail on the basics on how a bond works – see our article here.

Not to be confused with a Treasury Bill or Treasury Note (Or, See our article here: What’s the Difference?).

Why invest in Treasury Bonds?

 

Treasury Bonds are typically used for long term investments. They are valued because they are a risk-free asset (if held to maturity) that provides a steady fixed rate of income to investors.

Investors choose Treasury Bonds because of their increase in yield over securities with shorter maturities.

For example as I write this, these are the yields on the treasury securities of various maturities:

Length to Maturity

1 Year

2 Year

3 Year

5 Year

10 Year

30 Year

Yield

.135%

.375%

.875%

1.50%

2.89%

3.625%

 

As you can see, investors who are willing to commit their investments to longer term maturities are paid a higher interest rate.

An investor today who buys $10,000 in 30 year Treasury Bonds will be paid roughly $182.50 every 6 months ($365 per year) for 30 years (and then their $10,000 in principal will be returned).

 

Where to Buy Treasury Bonds

Treasury Bonds can be purchased at auction on Treasury Direct in increments of $100.

Treasury Bonds at auction or on the secondary market may also be available through your broker, ask your broker for more info.

 

Alternatives to Treasury Bonds

Numerous ETFs and Mutual Funds exist that allow investors to invest in Treasury Bonds. Most will have “Long term treasury bond” in the name.

Just some of them include:

TLT – iShares 20+ Year Treasury Bond ETF

VGLT – Vanguard Long Term Treasury Bond ETF

Additional Resources

Investors can check out Treasury Direct’s website describing Treasury Bonds here.

 

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