Types
Treasury billsare issued with maturities of 52 weeks or less. They are issued at a discount and redeemed at face value. The difference is calculated as the taxable interest income.
Treasury notesare issued with maturities of 2 to 10 years. Interest is paid every6 months.
Treasury bondsare issued with a maturity of more than 10 years, most commonly for a period of 30 years. Interest is paid every6 months.
Treasury Separate Trading of Registered Interest and Principal of Securities (STRIPS) are created when broker-dealers or the Treasury separates (“strips”) the interest and principal of a Treasury note or bond into separate components, which are then traded as zero-coupon securities. Investors buy STRIPS at a price below the face value of the securities and then receive the full amount when the STRIPS mature.
Treasury Inflation-Protected Securities (TIPS) are issued in terms of 5, 10, and 30 years. The principal amount rises or falls depending on the consumer price index. TIPS pay interest semiannually at a fixed rate applied to the inflation-adjusted principal. At maturity, the holder is paid the adjusted principal or original principal, whichever is greater. The yield quoted on TIPS is exclusive of inflation or deflation. During periods of deflation, previous positive adjustments to the inflation factor will erode. This means that investors purchasing previously issued TIPS may experience a loss of principal.
Treasury Floating Rate Notes (FRNs) are issued with a maturity of 2 years. The interest rate on a Treasury FRN, which resets weekly, is the sum of 2 components: the index rate, which is tied to the rate of a recently auctioned 13-week Treasury bill, and the spread, which is set when the FRN is first auctioned and remains fixed for the life of the FRN. As Treasury bill rates rise, the FRN’s interest payments will increase. Similarly, as Treasury bill rates fall, the FRN’s interest payments will decrease. Interest is paid quarterly. Floating Rate Notes may have a negative spread, which was set at the auction. This means that the yield on this floating rate note will be lower than the yield of the current 13-week Treasury bill. Vanguard does not offer the purchase of floating rate notes.
