What is a treasury bond?
A treasury bond is a debt security issued by the government, with a maturity of 30 years. It is also commonly called T-bond.
How do treasury bonds work?
Treasury bonds pay a fixed rate of interest. When you buy a treasury bond, you get the interest or coupon every six months, and get back the principal or the face value of the bond at maturity. Treasury bonds are marketable securities, which means they can be sold to someone else before their maturity date.
Why should I buy treasury bonds – what are their advantages?
The biggest advantage of t-bonds is that the interest you receive is exempt from state and local taxes, although it is taxed by the federal government. Treasury bonds are also virtually risk-free, since they are issued by the US government.
Are there any disadvantages of treasury bonds?
Since they are considered virtually risk-free, the rate of interest offered by t-bonds is lower than other fixed income investments.