4 Ways Treasuries are Different from Other Bonds

treasuries1) Treasury Bonds Are Backed By “The Full Faith And Credit of the US Government”

Only certain agency bonds offer the same level of security.

2) Treasury Bills, Notes, & Bonds Are Not Callable

Treasury Bonds cannot be called prior to maturity. Unlike many corporate and municipal bonds, there is no opportunity for the issuer (the US federal government) to force bondholders to receive the face value of the bond prior to maturity. This is particularly important now when bonds are trading at above face value, at a premium, as a call would mean the loss of the premium value.

3) Federal Income Taxes Apply, But State & Local Income Taxes Don’t

Municipal bonds can provide freedom from federal, state, and local income taxes. Strangely, interest on US Treasuries can be taxed by the government of the United States but not by your state, city or county.

4) Buying and Selling Treasuries Can be Done In $100 Increments With No Commissions

Most bonds are sold in increments of $1,000. Treasuries can be bought and sold in increments of $100. Treasury Direct, as well as online brokers, allow you to trade treasuries without paying commission.

Have a question about US Treasuries that we did not answer?  Let us know in the comments section below.

This lesson is part of our Free Guide to Investing in Treasuries.  Continue to the next lesson here.

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Comments

  1. Justin says

    Hi, quick question. Do you think that they will ever make it so one can invest not only in $100 increments, but any value over $100, like $102.36, for example? Kind of like how it is set up with US savings bonds (except they have $25 minimum). Is there enough demand for that to happen? I’m wondering, just how do they decide what the minimum investments are, what the increments are, and if the investors can invest any number or just multiples of the increment?

    Thanks,

    • David Waring says

      Hi Justin,

      Thanks for the comment, good question. The reason why savings bonds can be bought in any value above $25 is because they do not trade on a secondary market. You can buy them and sell them back to the Treasury but not to another person. Because of this they do not need to be standardized like other types of bonds, like T Bills for example, that do trade on a secondary market.

      Hope that helps. Let us know if there are any other questions.

      Best Regards,
      Dave

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