How To Buy Treasury Securities

How To Buy Treasury Securities

There are several ways to buy treasuries as investments; they can be purchased as Treasury bills, Treasury notes, Treasury bonds, Floating Rate Notes (FRNs) and as Treasury Inflation-Protected Securities (TIPS).

People with brokerage accounts can put their funds into exchange-traded funds (ETFs) or into Treasury money market funds that invest solely or mostly in treasuries. Treasuries can also be purchased directly from the federal government on the secondary market. The market for these instruments has been a direct conduit from people with cash to the US government since the early 1970s. A new innovation that gives people the opportunity to buy and sell treasuries is a portal operated by the US government directly to the public. It’s called TreasuryDirect, and it allows individuals to buy and sell government bonds directly from the Truman Building.

Key Takeaways

TreasuryDirect allows investors to buy Treasury bonds and bills directly from the U.S. government.

Ultimately, though, investors from the TreasuryDirect site need to pass the bonds to either bank or broker to be able to sell them before they reach maturity.

Investors can buy treasuries throug ETFs, money market accounts, and the secondary market.

TreasuryDirect

TreasuryDirect is a secure marketplace and online account system that allows individuals to purchase, hold and redeem eligible book-entry Treasury securities. TreasuryDirect is an arm of the Office of the Treasury, as is the US Department of the Treasury.

Through a TreasuryDirect account, investors may purchase debt securities directly from the U S Treasury in Treasury debt auctions. Treasury securities available for purchase with TreasuryDirect include U S savings bonds, Treasury bills (T Bills), Treasury notes, Treasury bonds, Floating Rate Notes (FRNs), and Treasury Inflation-Protected Securities (TIPS).

Individuals who want to buy their savings bonds directly with their computers by filling out an application form at the TreasuryDirect website should realize that there’re some steps and rules for opening an account.

BuyDirect is only accessible to investors who possess a valid Social Security Number or Taxpayer Identification Number (TIN).

Individuals must have an address within the United States and an email address.

A checking or savings account is required.

The customer gets to decide what type of product they want or what term, where they get the money from and how much they can afford.

Investors can schedule the date of purchase, although dates are subject to availability.

Securities are credited to an account no later than two business days after the purchase date with savings bonds, and one week after the auction date for bills, notes, bonds, FRNs and TIPS.

At maturity, T-bills, notes, and bonds may be reinvested.

The minimum purchase of savings bonds is $25 per person. Thereafter they are sold in denominations of up to $10,000 except for Series I savings bonds and literal TIPS where they are sold by the eighth. T-bills, notes, bonds and TIPS can be purchased competitively in auctions, with noncompetitive bids ranging from $100 on up to $10 million for bids at $100 increments.

Treasuries bought through TreasuryDirect cannot be redeemed prior to maturity of the issue – an investor must sell by transferring the securities to a broker and then selling through that broker on the secondary market.

Treasury Auctions

TreasuryDirect account holders can enter] treasury auctions. In 2023 alone there were 428 public auctions for $22 trillion of debt securities issued by the US Treasury. Treasury Department will announce the date and the amount of a security to be sold – its issue and maturity dates, terms and conditions, eligible participants, as well as deadlines for issuance of competitive and noncompetitive bids.

Noncompetitive bids for $10 million or less guarantee that the bidder will receive whatever outstanding amount of the underlying security that was auctioned for at the competitive bid price set by the auction. Competitive bids specify the estimated discount rate, yield or spread and could either partially or not be filled at all. Individual investors typically make noncompetitive bids while financial institutions typically bid competitively.

On the auction date, the Treasury verifies that all bids are in compliance with applicable rules. Compliant noncompetitive bids must be received by the time indicated in the auction announcement.Securities are credited to investor accounts, and payments are debited to the Treasury.

Buying Through Banks and Brokerages

ETFs: ETFs are bought and sold like stocks, many of which are commission-free. They include government bond ETFs devoted to short-term Treasuries, long-term Treasuries, TIPS, and FRNs. Treasury ETFs are eligible for IRAs and other tax-advantaged retirement accounts.

Money Market Accounts: Investors would opt for a US Treasury money market mutual fund. Such funds typically charge low fees and low returns – constrained by rates on the shortest-term US Treasury bills. The US Treasury’s Office of Financial Research tracks the investments of US money market mutual funds as a whole, and by financial institutions.

Secondary Market: Provides access to the entire bond market (with a wide variety of bonds on offer). Fees vary; most of the better brokerages make free trading available on Treasury bonds. Bonds purchased on the secondary market and through a broker can be held in an IRA or other tax-deferred retirement account. Secondary market purchases usually make for easier resale of Treasury bonds in the future.