According to Amadeo (2012), treasury bills, bonds and notes are some are among the safest investments. Treasury bills, bonds and notes are marketable securities that a government sells in an effort to settle debts or raise cash to run its affairs. For that reason, they are backed by the government. Additionally, the three securities are not liable to taxation at local levels. However, they attract the lowest interest rates since they are less risky (Amadeo 2012). Furthermore, treasury bills, bonds and notes are auctioned. Consequently, they are bought at prices higher or lower than their face value. Nonetheless, a person can resell them at a secondary market. Treasury bills are short term securities auctioned by the government (Investopedia 2000). On the other hand, treasury bonds are long-term securities with stated interest rates. Treasury notes are similar to bonds, but take a shorter time to mature. This essay explains the meaning of treasury bills, bonds and notes.
According to the Investopedia (2000), treasury bills are short-term securities a government issues at a discounted face value. Therefore, money generated from the sale of treasury bills is spent immediately by the government. A treasury bill’s term lasts for a year or less (Investopedia 2000). Additionally, since a treasury bill is sold at a discount, no interest is paid before maturity (Investopedia 2000). In this regard, interest paid is the difference between the face value and the purchase price. However, interest paid can also be the difference between the price of the treasury bill, if sold before maturity, and the purchase price (Investopedia 2000).
Treasury bonds are the most common types of securities released by a government (teenanalyst.com n.d.). Furthermore, a treasury bond has a stated interest rate. In addition, interest is paid to investors twice a year until maturity (Investopedia 2000). Investopedia (2000) also reiterates that a treasury bond’s term lasts for more than ten years. Treasury bonds, therefore, mature after ten years or more. For that reason, bonds guarantee long-term investments to investors (Investopedia 2000). At the same time, a government is able to secure a long-term funding to keep its operation running. Interestingly, investors earn interest throughout the life of a bond and also receive the full value of the bond when it matures (teenanalyst.com n.d.). New treasury bonds are issued to the public through an auction (teenanalyst.com n.d.). However, one can buy these bonds through brokers after their release. Moreover, treasury bonds are exempted from local taxes (teenanalyst.com n.d.). Therefore, although they attract low interest rates, they are free from some tax deductions.
Just like bonds, treasury notes are securities with stated interest rates (Investopedia 2000). Likewise, interest is paid to investors twice a year until maturity. Furthermore, they are exempted from local taxes (teenanalyst.com n.d.). However, a treasury note term is between two to ten years. For that reason, treasury notes offer an investor a shorter investment term than treasury bonds. The only striking difference between treasury bonds and notes is, therefore, the investment period.
Treasury bills, bonds and notes are issued by a country’s treasury. Consequently, when a person buys one of these securities, he lends money to the government. A government, therefore, sells these securities in a bid to raise money to pay debts or run its affairs. Investors, on the other hand, buy them with the hope of making a profit through accrued interest. However, although these forms of investments are less risky and escape some form of taxation, they attract low interest rates.
References
Amedeo, K 2012, What are treasury bills, notes and bonds? Web.
Investopedia 2000, What’s the difference between bills, notes and bonds? Web.
Teenanalyst.com n.d, Treasury bonds notes and bills. Web.