What It Is:
How It Works/Example:
T-Bonds are backed by the full faith and credit of the U.S. government. For this reason, T-Bonds are generally considered risk-free investments. Due to their lack of default risk and extremely high level of liquidity, Treasuries usually offer the lowest yields of bonds with similar maturities and are considered benchmarks of the fixed income asset class.
Institutional investors make up most of the market for Treasuries, but individual investors can easily purchase T-Bonds. Investors interested in purchasing Treasuries can do so directly from the Treasury or through banks and brokers.
Income from Treasuries is federally taxable but generally exempt from most state and local taxes. This means that for some investors, particularly those who live in states with high taxes, Treasuries may return slightly more than taxable securities with higher coupons.
Why It Matters:
For investors, Treasury bonds are widely regarded as the safest of investments. T-Bonds are especially attractive for those primarily interested in preserving capital or maintaining a consistent stream of income. But investors should be aware that due to Treasuries' low interest rates, inflation can be particularly eroding to real returns.