Treasury Securities

Lesson

Treasury securities are debt instruments issued by the U.S. government to finance its operations and pay off its debt. These securities are considered among the safest investments available, as the full faith and credit of the U.S. government backs them.

Practice Question #1

Which of the following Treasury securities has the shortest maturity?

A) Treasury Bills

B) Treasury Notes

C) Treasury Bonds

D) Treasury Inflation-Protected Securities

Select an option above to see an explanation here.

A) Treasury Bills have maturities of one year or less. B) Treasury Notes have maturities ranging from 2 to 10 years. C) Treasury Bonds have maturities of 10 years or more. D) Treasury Inflation-Protected Securities can have various maturities.

Terms

Treasury Bills (T-Bills):: Short-term debt instruments with maturities of one year or less, sold at a discount to face value.
Treasury Notes (T-Notes):: Intermediate-term debt instruments with maturities ranging from 2 to 10 years, paying semi-annual interest.
Treasury Bonds (T-Bonds):: Long-term debt instruments with maturities of 10 years or more, paying semi-annual interest.
Treasury Inflation-Protected Securities (TIPS):: Treasury securities indexed to inflation, protecting investors from the erosion of purchasing power.

Practice Question #2

What is the primary purpose of Treasury Inflation-Protected Securities (TIPS)?

A) To provide investors with a higher yield than other Treasury securities

B) To protect investors from the erosion of purchasing power due to inflation

C) To finance short-term government operations

D) To offer tax advantages to investors

Select an option above to see an explanation here.

A) TIPS do not necessarily provide a higher yield than other Treasury securities. B) TIPS are designed to protect investors from inflation by indexing the principal to changes in the Consumer Price Index. C) TIPS are not specifically used to finance short-term government operations. D) TIPS do not offer tax advantages to investors.

Do Not Confuse With

Corporate Bonds:: Debt instruments issued by corporations typically carry higher yields and risk than Treasury securities.

Practice Question #3

Which of the following is NOT directly backed by the full faith and credit of the U.S. government?

A) Treasury Bonds

B) Corporate Bonds

C) Treasury Notes

D) Treasury Bills

Select an option above to see an explanation here.

A) The U.S. government's full faith and credit back Treasury Bonds. B) corporations issue Corporate Bonds and are not directly backed by the U.S. government. C) The U.S. government's full faith and credit back Treasury Notes. D) The U.S. government's full faith and credit back Treasury Bills.

Historical Example

In the early 1980s, the U.S. government issued Treasury bonds with yields as high as 15% to attract investors and finance its operations during a period of high inflation and interest rates. These high-yielding bonds became known as "Treasury bond lottery tickets" due to their attractive returns and low risk.