What is a Treasury Bond?
A Treasury bond (T-bond) is a debt security issued by the U.S. government to raise funds. When you purchase a T-bond, you're essentially lending money to the federal government, which, in return, pays you a fixed interest rate until the bond matures.
Since these securities are fully backed by the U.S. government, the risk of losing your principal is extremely low, making them one of the safest investments available.
Understanding Bonds
A bond is essentially a loan you provide to an entity—whether it's a corporation, municipality, or, in the case of T-bonds, the federal government. You invest a specific amount (the principal) and receive periodic interest payments until the bond reaches maturity, at which point you get back your initial investment along with the final interest payment.
Treasury Bonds vs. Other Treasury Securities
Technically, all Treasury securities are bonds, but the government classifies them based on their maturity length:
- Treasury Bonds (T-bonds): Long-term securities with maturities of 20 or 30 years, paying interest every six months.
- Treasury Notes (T-notes): Medium-term securities with maturities ranging from 2 to 10 years.
- Treasury Bills (T-bills): Short-term securities maturing in 4 weeks to 1 year, typically sold at a discount and paying no interest before maturity.
Although T-bonds are long-term investments, you don’t have to hold them until maturity. They can be sold at any time, though bonds purchased directly from the U.S. Treasury must be held for at least 45 days before selling.
Why Invest in Treasury Bonds?
U.S. Treasury securities are a reliable source of income and tend to hold their value in various economic conditions, making them especially attractive during times of uncertainty. Regardless of your investment strategy, having some portion of your portfolio in bonds can provide stability.
Treasury bonds, considered the safest of high-quality bonds, serve as a strong foundation for a well-balanced investment portfolio. However, because they carry minimal risk, their interest rates are generally lower than those of corporate bonds.
How to Invest in Treasury Bonds
There are two primary ways to purchase Treasury bonds:
- TreasuryDirect – The official U.S. Department of the Treasury website allows individuals to buy Treasury securities directly. Most securities can be purchased in increments of $100, making it accessible for a wide range of investors.
- Brokerage Accounts – Many online brokers offer Treasury securities, allowing you to buy and sell within your brokerage account. However, some brokers require a minimum purchase of $1,000 for Treasury securities.
Tax Benefits
The interest earned on Treasury securities is exempt from state and local taxes but is subject to federal income tax. This tax advantage can make them more attractive than other fixed-income investments, especially for investors in high-tax states.
Treasury Notes: A Balanced Investment
Treasury notes (T-notes) are medium-term securities issued with maturities of 2, 3, 5, 7, and 10 years. They provide a balance between the higher risk of long-term bonds and the lower returns of short-term Treasury bills.
Interest rates vary based on the bond’s duration, with longer-term notes generally offering higher returns. For investors new to Treasury securities, T-notes can be an excellent starting point, providing stable returns while minimizing exposure to interest rate fluctuations.
Treasury Bills: Short-Term Government Securities
Treasury bills (T-bills) are short-term U.S. government securities with maturities of 4, 8, 13, 17, 26, or 52 weeks. A special type, called a cash management bill, is issued with even shorter durations, sometimes just a few days.
How T-Bills Work
Unlike Treasury bonds and notes, T-bills do not pay periodic interest. Instead, they are sold at a discount and pay their full face value at maturity. For example, if a one-year T-bill has an effective interest rate of 1%, an investor might buy a $1,000 T-bill for $990.10. When it matures, the investor receives $1,000, earning $9.90 in interest.
T-Bill Yields and Yield-Curve Inversion
T-bills generally offer lower yields than longer-term Treasury securities. However, in rare cases, short-term T-bills may yield more than long-term Treasury bonds—a phenomenon known as a yield-curve inversion. This occurs when short-term interest rates rise above long-term rates, signaling potential economic uncertainty or an impending recession.
How to Choose the Right Treasury Securities for Your Portfolio
For most investors, marketable Treasury securities (such as Treasury bills, notes, and bonds) are a better option than savings bonds due to their liquidity and tradability.
1. Build a Bond Ladder with Treasury Notes
Treasury notes, especially 10-year T-notes, can serve as the foundation of your bond investment strategy. They are well-suited for bond ladders, a strategy that involves investing in bonds with staggered maturity dates to provide steady income and manage interest rate risk.
2. Consider Tax-Advantaged Accounts
To minimize taxes on interest payments, you can hold Treasuries in a tax-deferred retirement account like an IRA. However, if your retirement accounts are filled with other income-generating assets, holding Treasuries in a taxable account can still be beneficial, as they are exempt from state and local taxes.
3. Shift Towards Bonds as Retirement Nears
As you approach retirement, increasing your allocation to bonds over stocks can help reduce risk and provide stable income. Once retired, a portfolio of Treasury securities can offer a reliable and low-risk income stream, ensuring financial security in your later years.
A Secure and High-Yield Alternative: Compound Real Estate Bonds (CREB)
While Treasury securities provide a safe and reliable investment option, they often come with lower yields. For investors seeking higher returns without compromising on security, Compound Real Estate Bonds (CREB) offer an attractive alternative. CREB provides fixed-income bonds backed by real assets and U.S. Treasuries, delivering an impressive 8.5% APY. With no fees, flexible withdrawals, and auto-investing options, CREB makes it easy to grow your wealth while maintaining stability—making it a great complement to a diversified bond portfolio.
Final Thoughts
Treasury securities offer a low-risk, reliable way to preserve capital and generate steady income, making them an essential part of a well-balanced investment portfolio. Whether you opt for short-term T-bills, medium-term T-notes, or long-term T-bonds, your investment remains backed by the U.S. government, ensuring safety and predictability.
However, while Treasuries provide stability, their lower yields may not always align with long-term wealth-building goals. This is where Compound Real Estate Bonds (CREB) can complement your strategy—offering higher returns (8.5% APY), real asset backing, and flexible withdrawals. By combining the security of Treasuries with the high-yield potential of CREB, you can create a diversified and resilient investment plan that works for both stability and growth.
