What is Treasury Bond (T-Bond)?
Let's find out Treasury Bond (T-Bond) meaning, definition in crypto, what is Treasury Bond (T-Bond), and all other detailed facts.
A Treasury Bond, also referred to as a T-Bond, is a government-issued debt security within the United States. Various government expenses are covered by treasury bonds.
Treasury bonds are established when a citizen of the United States lends money to the government and receives interest payments every six months until maturity. The maturities can be anywhere between 10 to 30 years unlike treasury bills, also known as T-Bills, whose maturities take only up to one year.
In times of financial uncertainty, T-Bonds have been a saving grace. Plus they look great on an individual portfolio in case you’d like fixed-income assets.
Don’t equate treasury bonds to stocks since they can’t be traded the same way. Unlike stocks and other financial instruments that you can only buy and sell at specific times during the day, T-Bonds are open for trade at all times.
You can buy or sell T-Bonds directly through a secondary market and over-the-counter (OTC). Federal Reserve Bank also issues treasury bonds as well as any other company that was authorized by the former to do so.
Additionally, Treasury Department holds online auctions where you also have an opportunity to buy treasury bonds.
There are two routes of action you can take when in possession of T-Bonds. Firstly, you can hold them until they mature thus receiving semiannual interest payments. On the other hand, you can also sell it before it matures. However, your gains may be lower than if you held the T-Bond until maturity.
When it comes to the latter, it’s advisable to sell T-Bonds through a broker in a secondary market.
What are the pros and cons of treasury bonds?
- Pros. The main advantage of T-Bonds is that they’re a safe investment that doesn’t involve high risks. By purchasing a treasury bond, you can rest assured that you’ll receive a steady interest payment every six months. Therefore, you’ll have a consistent stream of income until maturity which could be 10 to 30 years away. Additionally, T-Bonds are high in liquidity.
- Cons. The main disadvantage of T-Bonds lies in low interest rates which translates to low-interest payments. Additionally, in case you decide to sell your treasury bonds, you’ll most likely receive a lower amount of money than your initial investment.
At the end of the day, T-Bonds are still an investment, therefore a certain amount of risk is associated with it. Before purchasing a treasury bond, look through the fine print, observe the market, and only then make the final decision.