What it is:
How it works (Example):
Treasury bills are short-term, zero-coupon bonds that are issued in maturities with lengths of 4, 13 or 26 weeks. Treasury notes are intermediate-term bonds issued by a federal government with maturities of 2, 3, 5 or 10 years. Treasury bonds are long-term, semi-annual coupon bonds issued by a federal government. Their maturities range from 10 to 30 years.
U.S. Treasuries are considered the safest investments in the world because the U.S. government has never defaulted on any debt it has issued. For this reason, Treasuries serve as a benchmark for the risk-free rate of return when determining the amount of expected risk for other types of assets.
Why it Matters:
Treasuries are savings vehicles for governments, corporations, banks and individuals around the world. They are also an important instrument in monetary policy, because the sale and repurchase of them allows central banks to control the money supply and thus make adjustments to a nation's economy.
Treasuries are some of the world's safest investments, and therefore, have lower yields than more risky investments. They are appropriate for the most risk-averse investors who are mainly interested in preserving capital or having a steady stream of income. The rating of a nation's treasuries by credit rating agencies is an essential indicator of the financial stability of that nation.