U.S. Treasury Securities Definition....

NegotiableU.S.Governmentdebt obligations, backed by itsfull faith and credit.Exemptfrom state andlocal taxes. U.S.Treasury Securitiesare issued by the U.S. government inordertopayfor governmentprojects. Themoneypaidout for aTreasurybondis essentially aloanto the government. As with any loan, repayment ofprincipalis accompanied by a specifiedinterest rate. These bonds are guaranteed by the "fullfaithand credit" of the U.S. government, meaning that they are extremely lowrisk(since the government can simplyprintmoney topay backthe loan). Additionally,interestearned onU.S. TreasurySecuritiesis exempt from state andlocaltaxes.Federal taxes, however, are stilldueon the earned interest. The governmentsellsU.S. Treasury Securities byauctionin theprimary market, but they aremarketable securitiesand therefore can be purchased through abrokerin the veryactivesecondary market. A broker willchargeafeefor such atransaction, but the government charges no fee toparticipatein auctions. Prices on the secondarymarketand at auction are determined byinterest rates. U.S. Treasury Securities issued today are notcallable, so they will continue toaccrueinterest until thematurity date. One possibledownsideto U.S. Treasury Securities is that if interestratesincreaseduring the term of the bond, the money invested will be earning less interest than it couldearnelsewhere.Accordingly, theresale valueof the bond willdecreaseas well. Because there is almost no risk ofdefaultby the government, thereturnonTreasury bondsis relatively low, and a highinflation ratecan erase most of the gains by reducing thevalueof the principaland interestpayments. There are threetypesof securities issued by the U.S. Treasury (bonds,bills, andnotes), which are distinguished by theamountof time from theinitialsaleof the bond tomaturity.also calledTreasuries.

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