U.S. Treasury Securities
If the thought of watching a stock tumble in value makes you queasy, or if you have the need to invest in truly safe cash equivalents, consider U.S. treasury bonds. Uncle Sam's gift to U.S. investors, the treasury market offers a safe haven to battered stock investors looking for short- or long-term relief. Treasuries, as these bonds are known, are predictable and lower yielding on average than stocks, but they are also far more secure. Generally, federal taxes must be paid on the interest, but the interest is free from state and local taxes. Treasuries are also backed by the full faith and credit of the U.S. government.
What makes treasuries so desirable, though, is that they are highly liquid investments and can be sold quickly for cash. These securities are also easier to sell than other bonds because the government bond market is enormous. In fact, the treasury market is the biggest securities market in the world, with an average trading volume greater than $250 billion every day. Treasuries also make good hedges against interest rate fluctuations: Investors who buy them lock in a fixed, annual rate of return that holds firm even if rates change during the life of the bond. Treasuries come in three basic flavors:
Treasury bills (T-bills) are very short-term securities, with maturities ranging from four weeks to up to one year. T-bills come in $100 increments with a minimum $100 purchase and are sold at a discount from face value; the discount represents the interest income on the security.
Treasury notes come with intermediate-term maturities of two, five, and ten years. These notes are sold in $100 increments with a minimum $100 investment. They come with fixed interest rates and pay interest semi-annually.
Treasury bonds are strictly long-term securities, with maturities of thirty years. They can be purchased for as little as $100. These bonds come with fixed coupon rates and pay interest every six months until maturity.