InvestorQ : What does a new investor need to know about treasury bonds?
sanjana Tulsiani made post

What does a new investor need to know about treasury bonds?

Nikita Damle answered.
1 year ago

A Treasury bond (T-bond) is a long-term fixed-interest instrument issued by the US Treasury Department and forms part of the range of government securities issued by the US national government. T-bonds are always issued in 30-year terms and pay interest every six months.

However, you don't have to hold the bond for the full 30 years; you can sell it any time after the first 45 days. Like all long-term bonds, T-bonds carry a significant risk that interest rates will rise during that 30-year period, reducing the value of your bond. As a result, long-term issues often pay a higher rate of interest to compensate the bond purchaser for that risk. T-bond holders receive semi-annual interest payments until maturity.

In addition to the semiannual interest rate payments, bondholders eventually get all of their investment principal back. When a T-bond matures – meaning it has reached its maturity date and expires – the investor is paid out the full face value of the T-bond. That means if the bondholder holds a T-bond worth $10,000, he or she will receive the $10,000 principal back, as well as earning interest on the investment. As T-bonds are a virtually risk-free form of investment, they are preferred when the stock market is volatile, and investors are looking for a safe place to park their savings.

However, the safety of the T-bonds also means that they offer lower interest rates than shares, stocks, or even other fixed-income securities. T-bonds are widely considered a risk-free investment, as they have extremely low odds of default since they are backed fully by the U.S. government.