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# United States Treasury security

United States Treasuries history compared to the Federal Funds Rate
2 to 10 year treasury yield spread

United States Treasury securities are government debt instruments issued by the United States Department of the Treasury to finance government spending as an alternative to taxation. Treasury securities are often referred to simply as Treasurys. Since 2012, U.S. government debt has been managed by the Bureau of the Fiscal Service, succeeding the Bureau of the Public Debt.

There are four types of marketable treasury securities: Treasury bills, Treasury notes, Treasury bonds, and Treasury Inflation Protected Securities (TIPS). The government sells these securities in auctions conducted by the Federal Reserve Bank of New York, after which they can be traded in secondary markets. Non-marketable securities include savings bonds, issued to the public and transferable only as gifts; the State and Local Government Series (SLGS), purchaseable only with the proceeds of state and municipal bond sales; and the Government Account Series, purchased by units of the federal government.

Treasury securities are backed by the full faith and credit of the United States, meaning that the government promises to raise money by any legally available means to repay them. Although the United States is a sovereign power and may default without recourse, its strong record of repayment has given Treasury securities a reputation as one of the world's lowest-risk investments.

## History

To finance the costs of World War I, the U.S. Government increased income taxes (see the War Revenue Act of 1917) and issued government debt, called war bonds. Traditionally, the government borrowed from other countries, but there were no other countries from which to borrow in 1917.[1]

The Treasury raised funding throughout the war by selling $21.5 billion in 'Liberty bonds.' These bonds were sold at subscription where officials created coupon price and then sold it at par value. At this price, subscriptions could be filled in as little as one day, but usually remained open for several weeks, depending on demand for the bond.[1] After the war, the Liberty bonds were reaching maturity, but the Treasury was unable to pay each down fully with only limited budget surpluses. To solve this problem, the Treasury refinanced the debt with variable short and medium-term maturities. Again the Treasury issued debt through fixed-price subscription, where both the coupon and the price of the debt were dictated by the Treasury.[1] The problems with debt issuance became apparent in the late 1920s. The system suffered from chronic over-subscription, where interest rates were so attractive that there were more purchasers of debt than required by the government. This indicated that the government was paying too much for debt. As government debt was undervalued, debt purchasers could buy from the government and immediately sell to another market participant at a higher price.[1] In 1929, the US Treasury shifted from the fixed-price subscription system to a system of auctioning where 'Treasury Bills' would be sold to the highest bidder. Securities were then issued on a pro rata system where securities would be allocated to the highest bidder until their demand was full. If more treasuries were supplied by the government, they would then be allocated to the next highest bidder. This system allowed the market, rather than the government, to set the price. On December 10, 1929, the Treasury issued its first auction. The result was the issuing of$224 million three-month bills. The highest bid was at 99.310 with the lowest bid accepted at 99.152.[1]

## Marketable securities

The types and procedures for marketable security issues are described in the Treasury's Uniform Offering Circular (31 CFR 356).

Treasury notes (T-notes) have maturities of 2, 3, 5, 7, or 10 years, have a coupon payment every six months, and are sold in increments of $100. T-note prices are quoted on the secondary market as a percentage of the par value in thirty-seconds of a dollar. Ordinary Treasury notes pay a fixed interest rate that is set at auction. Another type of note, known as the floating rate note, pays interest at a rate that adjusts quarterly based on bill rates. The 10-year Treasury note has become the security most frequently quoted when discussing the performance of the U.S. government bond market and is used to convey the market's take on longer-term macroeconomic expectations. ### Treasury bond 1979$10,000 Treasury Bond

Treasury bonds (T-bonds, also called a long bond) have the longest maturity at thirty years. They have a coupon payment every six months like T-notes.[8]

The U.S. Federal government suspended issuing 30-year Treasury bonds for four years from February 18, 2002 to February 9, 2006.[9] As the U.S. government used budget surpluses to pay down Federal debt in the late 1990s,[10] the 10-year Treasury note began to replace the 30-year Treasury bond as the general, most-followed metric of the U.S. bond market. However, because of demand from pension funds and large, long-term institutional investors, along with a need to diversify the Treasury's liabilities—and also because the flatter yield curve meant that the opportunity cost of selling long-dated debt had dropped—the 30-year Treasury bond was re-introduced in February 2006 and is now issued quarterly.[11] In 2019, Treasury Secretary Steven Mnuchin said that the Trump administration was considering issuance of 50-year and even 100-year Treasury bonds.[12]

### TIPS

Treasury Inflation-Protected Securities (TIPS) are inflation-indexed bonds issued by the U.S. Treasury. The principal is adjusted with respect to the Consumer Price Index (CPI), the most commonly used measure of inflation. When the CPI rises, the principal is adjusted upward; if the index falls, the principal is adjusted downwards.[13] The coupon rate is constant, but generates a different amount of interest when multiplied by the inflation-adjusted principal, thus protecting the holder against the inflation rate as measured by the CPI. TIPS were introduced in 1997.[14] TIPS are currently offered in 5-year, 10-year and 30-year maturities.[15]

### Coupon stripping

The secondary market for securities included T-notes, T-bonds, and TIPS whose interest and principal portions of the security have been separated, or "stripped", in order to sell them separately. The practice derives from the days before computerization, when treasury securities were issued as paper bearer bonds; traders would literally separate the interest coupons from paper securities for separate resale, while the principal would be resold as a zero-coupon bond.

The modern versions are known as Separate Trading of Registered Interest and Principal Securities (STRIPS). The Treasury does not directly issue STRIPS – they are products of investment banks or brokerage firms – but it does register STRIPS in its book-entry system. STRIPS must be purchased through a broker, and cannot be purchased from TreasuryDirect.

## Nonmarketable securities

### Government Account Series

The Government Account Series is the principal form of intragovernmental debt holdings.[23] The government issues GAS securities to federal departments and federally-established entities like the Federal Deposit Insurance Corporation that have excess cash.

### State and Local Government Series

The State and Local Government Series (SLGS) is issued to government entities below the federal level which have excess cash that was obtained through the sale of tax-exempt bonds. The federal tax code generally forbids investment of this cash in securities that offer a higher yield than the original bond, but SLGS securities are exempt from this restriction. The Treasury issues SLGS securities at its discretion and has suspended sales on several occasions to adhere to the federal debt ceiling.

## Holdings

In September 2019 approximately $5.9 trillion of outstanding Treasury securities, representing 26% of the public debt, were held by agencies of the federal government itself. These intragovernmental securities function as time deposits of the agencies' excess and reserve funds to the Treasury. The Federal Reserve Bank of New York was also a significant holder as the market agent of the Federal Reserve system, with$2.7 trillion or roughly 11%. Other domestic holders included mutual funds ($2.2 trillion), state and local governments ($1.1 trillion), banks ($910 billion), private pension funds ($728 billion), insurers ($208 billion) and assorted private entities and individuals ($2.8 trillion, including $152 billion in Savings Bonds).[24] ### International As of June 28, 2019,[25] the top foreign holders of U.S. Treasury securities are: Holders Long-term – US$ billion
(percent change
since June 2018)
Short-term – US$billion (percent change since June 2018) Total – US$ billion
(percent change
since June 2018)
[26]
Est. ratio to GDP
(where 2017 values
are available)
[27][28]
Japan 1,064.7
+10%
60.6
(− 4%)
1,125.3
+ 9%
23%
China 1,108.7
(− 7%)
3.8
(− 9%)
1,112.5
(− 7%)
5%
United Kingdom 286.5
+25%
47.7
+20%
334.1
+24%
13%
Brazil 308.9
+ 5%
2.9
(−53%)
311.8
+ 4%
15%
Ireland 223.9
(− 9%)
35.0
(−35%)
258.8
(−14%)
78%
Switzerland 194.6
(− 6%)
38.0
+36%
232.5
(− 1%)
34%
Luxembourg 183.3
+ 8%
47.2
(− 1%)
230.5
+ 6%
369%
Cayman Islands 134.3
+56%
90.3
(−13%)
224.6
+18%
N/A
Hong Kong 189.6
+23%
29.4
(−29%)
219.0
+12%
64%
Belgium 174.6
+26%
24.5
+56%
199.1
+30%
40%
Saudi Arabia 130.4
+18%
45.2
(−15%)
175.6
+ 8%
26%
172.2
+ 7%
2.9
+73%
175.1
+ 8%
31%
India 160.6
+14%
2.2
(−64%)
162.7
+10%
6%
Others 1,571.0
+14%
279.5
+ 3%
1,850.5
+13%
N/A
Total 5,903.2
+ 8%
709.0
(− 3%)
6,612.2
+ 7%
N/A

## References

1. Kenneth D. Garbade (July 2008). "Why The U.S. Treasury Began Auctioning Treasury Bills in 1929" (PDF). Federal Reserve Bank of New York, Vol. 14, No. 1. Retrieved April 27, 2011.
2. ^ Treasury Bills, TreasuryDirect.gov. U.S. Department of Treasury, Bureau of Public Debt. April 22, 2011. Retrieved May 24, 2011.
3. ^ Herold, Thomas (2017). "What are Treasury Bills?". Financial Terms Dictionary.
4. ^ Treasury to Issue Four-Week Bills
5. ^ Live Small-Value Contingency Auction Operation
6. ^ Quarterly Refunding Statement (May 6, 2020)
7. ^ [1]
8. ^ Financial, Kaplan (April 2019). Securities Industry Essentials (1 ed.). Kaplan, Inc. p. 60. ISBN 978-1-4754-8780-0. Retrieved November 29, 2019.
9. ^ "Treasury Reintroduces 30-Year Bond". U.S. Federal Reserve. April 13, 2011. Retrieved August 22, 2012.
10. ^ "The United States on Track to Pay Off the Debt by End of the Decade". Clinton4nara.gov. December 28, 2000. Archived from the original on June 1, 2010. Retrieved October 23, 2009.
11. ^ "Table of Treasury Securities". U.S. Department of the Treasury. November 4, 2010. Retrieved April 27, 2011.
12. ^ Andrea Shalal (September 12, 2019). "Mnuchin says 100-year Treasury bond possible". Reuters.
13. ^ Benjamin Shephard (July 9, 2008). "Park Your Cash". InvestingDaily.com. Retrieved May 17, 2011.
14. ^
15. ^ "Treasury Inflation-Protected Securities(TIPS)". TreasuryDirect.gov. April 7, 2011. Retrieved April 27, 2011.
16. ^ Pender, Kathleen (December 3, 2007). "Treasury takes new whack at savings bonds". The San Francisco Chronicle. Hearst. Retrieved February 14, 2007.
17. ^ Pender, Kathleen (July 13, 2011). "Treasury takes new whack at savings bonds". Treasury Department News Release. Treasury. Retrieved November 25, 2011.
18. ^ a b TreasuryDirect Savings Bond Rate Press Release
19. ^ "Series EE/E Savings Bond Rates". U.S. Department of the Treasury. Retrieved July 19, 2008.
20. ^ a b "I Savings Bonds Rates & Terms". TreasuryDirect.gov. November 1, 2015. Retrieved June 6, 2017.
21. ^ "Use Your Federal Tax Refund to Buy Savings Bonds". irs.gov. February 1, 2011. Retrieved April 27, 2011.
22. ^ "Regulations Governing Treasury Securities, New Treasury Direct System" (PDF). U.S. Department of the Treasury. Bureau of the Public Debt, Fiscal Service, Treasury, Vol. 69, No. 157. August 2004. Retrieved May 17, 2011.
23. ^ "Monthly Statement of the Public Debt of the United States" (PDF). treasurydirect.gov. September 30, 2009. Retrieved November 4, 2009.
24. ^ Treasury Bulletin (March 2020): Ownership of Federal Securities
25. ^ "Foreign Portfolio Holdings of U.S. Securities as of 6/28/2019" (PDF). U.S. Department of the Treasury. April 30, 2020.
26. ^ "Foreign Portfolio Holdings of U.S. Securities as of 6/29/2018" (PDF). U.S. Department of the Treasury. April 30, 2019.
27. ^ "GDP (Official Exchange Rate)". CIA World Factbook.
28. ^ "GDP (Purchasing Power Parity)". CIA World Factbook.