Treasury Notes may be purchased for $1000 or higher in multiples of $1000. Treasury bonds were issued in denominations of $1000, $5000, $10,000, $100,000, and $1 million. Investors pay the face amount for Treasuries ($1000 for a $1000 bond) and receive interest checks every six months. If you wish, you can have your interest payment mailed to you in the form of a check, or deposited automatically in your checking or savings account.
Two-year notes are issued at the end of each month, and 3-year, 5-year, and 10-year notes are issued on February 15, May 15, August 15, and November 15 of each year.
You can purchase Treasury securities through a bank, a broker, or - for those prefer to pay no commission - directly from the U.S. Treasury. To buy from the Treasury, you would go directly through a Federal Reserve branch or the Bureau of Public Debt (1300 C St., S.W., Washington, DC 20239).
In order to buy directly from the Fed, you need to put in a "noncompetitive bid" at the Treasury's quarterly auction (they occur in February, May, August, and November), which means you are willing to pay the average rate for the securities you want. Otherwise you can buy a Treasury security through a regular bank or brokerage firm for a fee of about $50. They can also be easily bought and sold on the secondary bond market.
Perhaps the most convenient way to buy Treasury Securities is through the U.S. Treasury's web site, www.treasurydirect.gov. You can go to the site, click on the section for "Treasury Bills, Notes, and Bonds," and follow the instructions. You'll be able to buy treasury securities online, directly from the U.S. Treasury without paying a commission.
For conservative investors who plan to hold for the full term of the bond, Treasuries offer little reason for concern. However, if you buy a T-bond or note while interest rates are low, you could be stuck with a low yield for a very long time. In fact, if you hold your bond through a period of rising inflation, your yield could actually fall below the rate of inflation. That means, in real dollar terms, your wealth would actually be declining instead of increasing with each interest payment.
To avoid the creep of inflation, you could sell your bonds as interest rates rise, but that would mean taking a hit on the price of the bond. You would be forced to sell the bond for less than what you paid for it. So while Treasuries are safe and secure in principal, they can have some risks.
The best time to buy Treasuries, as with nearly all traditional types of bonds, would be during periods of high interest rates. It can be difficult to predict the movement of interest rates, but as interest rates drop, the value of existing bonds increases. Buying bonds near the peak of interest rates would put you in a very strong position. As interest rates drop, you could hold the bond and continue to enjoy high returns, or you could sell the bond at a premium, earning a tidy profit on your investment.
By contrast, the worst time to buy Treasuries would be during a period when interest rates are low and are beginning to rise. That would put you in the unenviable position of either collecting low rates throughout the term of the bond, or selling it out at a loss. You could opt for bonds with shorter terms, but the shorter the term, the worse the return. For instance, in 2003, two-year Treasury Notes were paying just 1.56 percent compared to 3.94 percent for 10-year notes and 4.94 percent for 30-year bonds. When rates are low, your options are all less than ideal.
T-bond and T-note rates and prices are listed in the Wall Street Journal, Investors' Business Daily, and other financial publications. You can find current rates and volumes of other information about savings bonds and other government bonds at the federal government's own Web site - www.treasurydirect.gov.
The amount of money you allocate toward U.S. Treasury Bonds and Notes would depend on your tax situation, your financial situation, your investment goals, and your threshold for risk.
Conservative investors who are more concerned with preservation of spending power than they are with growth might want to invest 20 to 50 percent of their assets in T-bonds and notes under normal economic conditions. You might want to lighten the weighting of Treasuries in the portfolio during periods of low interest rates, and increase the weighing during periods of high interest.
Aggressive investors looking for long-term growth would probably want to limit their investment in T-Bonds and notes, particularly in times of low interest. However, an allocation of 5 to 20 percent of assets in government bonds and notes even for aggressive investors would help provide balance and diversification, and could buoy the portfolio when stocks are down.
