Bonds, Bills and Notes: Stripping Confusion
With a plethora of bonds, it is no wonder why investing in them seem so confusing. To strip the confusion in investing in bonds, it is best to know all the types involved. Basically, there are 3 common types of bonds: the Treasury Bonds (T-Bonds), Treasury Bills (T-Bills), and Treasury Notes (T-Notes).
The United States Treasury sells the bonds to the public in order to raise money to defray the expenses of the country. Investors, on the other hand, purchase these bonds in hope of making money from them in the form of interest.
Though the bonds have identical names and sold by the US Treasury, they have their own set of significant differences. The most common type is the T-Bonds, the long-term debt issues that don’t mature for at least 10 years. As such, they serve as a major funding to keep government operations running. Investors earn interest through them and when they mature, they earn the full value of the bond back. T-Bonds are safe ventures simply because they are backed by the government. They also offer lower interest rates than corporate bonds thus delivering a couple of tax advantages.
T-Bills, on the other hand, are the types of bonds that you can rely upon when you want a short-term investment. T-Bills investments have maturity dates of 3 months, 6 months, and one year. The federal government sells these bonds in the same fashion as T-Bonds and T-Notes. But the money that the government accumulates is used for immediate spending.
T-Notes are a lot like T-Bonds. They are also exempt from state and local taxes and offer utmost safety to the investor because they are backed by the federal government. They also pay low interest rates and are sold by the Federal Reserve Banks. The real difference between the two is that T-Notes are shorter-term investments. They usually mature between 2-10 years.
