United States Treasury Security

by Stephan Smith on March 29, 2011

When it comes to understanding how the Federal Reserve implements most of its monetary polices, where investors move their money when they want safer investments and how the United States acquires more money needed for running the government and all of its programs, then the United States Treasury Security is what you should learn about.

If you aren’t sure what a United States Treasury Security is, then I recommend that you continue to read this page because on this page I will explain exactly what it is and why it is important for the central bank of the United States, investors around the world and the United States government.

What is a United States Treasury Security?

A United States Treasury Security is an obligation issued by the United States Treasury department through the Bureau of Public Debt to repay in full, any money borrowed from an investor, domestic or non-domestic, plus any interest accrued. The United States Treasury Security is nothing more than a tool used by the United States government to raise money to help finance its operation.

A United States Treasury Security is government debt; it is a request for money made by the United States government to the public. It works in the same fashion as a loan from a bank to an individual or business. Whenever an individual or business needs money, one would go to a bank, request a loan and if accepted gets the agreed upon money and takes on debt. An agreement would be made between the borrower and the lender on how the money would be paid back and at what interest rate.

It works the same way with United States Treasury Securities. In this case, the United States would be the borrower and public would be the lender. Now let’s briefly go over the different types of United States Treasury Securities.

Types of United States Treasury Securities

  • Treasury Bill
  • Treasury Note
  • Treasury Bond
  • Treasury Inflation-Protected Security
  • I Savings Bond
  • EE/E Savings Bond

According to the Bureau of Public Debt through its website TreasuryDirect.gov (a site where United States Treasury Securities are sold online), Treasury Bills…

“are short-term government securities with maturities ranging from a few days to 52 weeks. Bills are sold at a discount from their face value.”

- Bureau if Public Debt via TreasuryDirect.gov – source

Treasury Notes…

“…are government securities that are issued with maturities of 2, 3, 5, 7, and 10 years and pay interest every six months.”

- Bureau if Public Debt via TreasuryDirect.gov

Treasury Bonds government securities that…

“…pay interest every six months and mature in 30 years.”

- Bureau if Public Debt via TreasuryDirect.gov

Treasury Inflation-Protected Securities…

“…are marketable securities whose principal is adjusted by changes in the Consumer Price Index. TIPS pay interest every six months and are issued with maturities of 5, 10, and 30 years.”

- Bureau if Public Debt via TreasuryDirect.gov

I Savings Bonds…

“…are a low-risk savings product that earn interest while protecting you from inflation. Sold at face value.”

- Bureau if Public Debt via TreasuryDirect.gov

EE/E Savings Bonds…

“…are a secure savings product that pay interest based on current market rates for up to 30 years. Electronic EE Savings Bonds are sold at face value in TreasuryDirect. Paper EE Savings Bonds are sold at 1/2 face value.”

- Bureau if Public Debt via TreasuryDirect.gov

Investors and the Federal Reserve System

The general consensus is that United States Treasury Securities are some of the safest investments available in the investment world. Why? Because all Treasury Securities are 100 percent backed by the United States government which means that the US government itself promises that your investment money is safe and that you will be paid back in full plus any interest earned. That’s why individuals, institutions and governments around the world invest in United States Treasury securities. It’s a safe, secure place to place ones money and have it earn income.

United States Treasury Securities are important to the central bank of the United States, the Federal Reserve because it buys and sells them in order to execute its various monetary policies. That is the reason why the Federal Reserve is the largest holder of United States Treasury Securities. Whenever the Federal Reserve wants to enact expansionary monetary polices, it will buy various kinds of United States Treasury Securities among other investments. If the Federal Reserve wants to enact contractionary monetary policies, then it will sell its holdings of Treasury Securities among other investments.



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