Asset Focus: US Treasury Bonds, Bills and Notes
In the latest article in our Asset Focus series, I’m going to be talking about investing in U.S government debt assets issued by the treasury, which include treasury bonds, bills and notes.
Read on, and I’ll explain what they are, and how you can incorporate them into your portfolio to achieve strong returns and enjoy a comfortable life.
What Are U.S Treasury Bonds, Bills and Notes?
Treasury bills, bonds and notes are all government-issued assets that offer a fixed-income and the chance to invest in a secure entity.
Each type of asset has a different interest rate and structure. Treasury bonds are long-term bonds, and as such, they mature after 30 years and pay interest every 6 months.
Treasury notes are a medium-term investment, and as such, they pay a lower rate of interest, but they mature between 2 and 10 years. Therefore, you can withdraw your money faster and aren’t subject to as much market volatility, depending on the maturity length that you choose.
Treasury bills are short-term assets, and usually mature after a year or less. You can buy them in allocations of $1,000, and you can purchase as many as you need up to the value of several million dollars.
How To Invest In U.S Treasury Bonds, Bills and Notes?
You can invest in US Treasuries directly, or you can purchase them via a bond broker. There are also several investment funds that invest in U.S government debt assets. here are three good ones:
- The Vanguard Extended Duration Treasury ETF
- The PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund
What Are The Returns?
The return on your government debt asset will depend on what type you choose and the interest rates that the government is offering when you buy your asset.
Bonds offer the most substantial return, as they are a long-term investment and can offer investors regular interest payments for as long as 30 years. At the time of writing, T-bonds were yielding 1.3 to 14 per cent (1.3% to 1.4%).
Treasury bills pay interest when the investment matures, but as they are a short-term asset, this can be as little as 4 weeks. Yields to 1-month T-Bills are current 0.12 per cent (0.12%).
Treasury notes are a medium-term asset, and they have a strong secondary market, so they can easily be liquidated before maturity if necessary. If held to full maturity, they will pay interest every 6 months and can bring in strong returns for little risk. Yields to 5-year T-Notes are currently around 0.30 per cent (0.30%).
What Are The Risks?
As the U.S government issues these assets, they are considered relatively low-risk. While you’re not at risk of losing your money, fluctuating interest rates mean that your bond could be worth less than initially invested if you sell before maturity.
Inflation also affects the value of your return, particularly if you’re investing in a 30-year bond, as inflation could reduce the value of your returns.
To find out more about investing in treasury debt and how you can use it as a risk reduction tool in your portfolio, then check out these reliable resources: