Three Main Uses Provides Income Liquidity Tax Exemption

What is it?
Also known as a Government Security, treasuries are a debt obligation of a local national government. Because they are backed by the credit and taxing power of a country they are regarded as having little or no risk of default. This includes short-term treasury bills, medium-term treasury notes and long-term treasury bonds. One major advantage of treasuries is that they are exempt from state and municipal taxes, this is especially lucrative in states with high income tax rates.

- Treasury Bills: A U.S. Government debt security with a maturity less than 1 year. T-bills do not pay a fixed interest rate, they are issued through a competitive bidding process at a discount from par.

- Treasury Notes: A marketable, fixed-interest rate U.S. Government debt security with a maturity greater than 1 year and 10 years or less.

- Treasury Bonds: A marketable, fixed-interest U.S. Government debt security with a maturity over 10 years. Treasury bonds are usually issued with a minimum denomination of $1,000.

Objectives and Risks: Treasuries are mainly used as safe havens for investors, especially when the markets head south. The fact that these debt instruments offer very little risk of default means the interest rate investors receive is relatively low. The price of treasuries rises as interest rates fall, the opposite is true when interest rates are rising. Therefore the best time to buy treasuries is when interest rates are relatively high.

How to Buy or Sell it:
Treasuries can be bought through various discount and full service brokers. Bond brokers also allow you to buy and sell treasuries. Perhaps the best way for individuals to buy or sell Treasuries is from the U.S. Treasury's " Treasury Direct " program, which provides transactions for very little or no fees.

Strengths:

treasuries are considered to have almost no risk. this low risk makes it fairly easy to borrow against the bonds. the U.S. treasury market is among the most active in the world, thus there is no shortage of liquidity .

Weaknesses:

rates of return are not that great compared to other debt instruments.

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