Cash Assistance Handbook |
RESOURCES |
The U.S. Government borrows considerable amounts of money, much of it by issuing securities. |
These are short-term obligations with 3, 6, or 12 month due dates. The minimum investment is $10,000 and additional $5,000 increments are available. New 3 and 6 month batches are auctioned each Monday. Twelve-month bills are auctioned once a month. T-Bills are registered in book entry form at the Treasury Department rather than issuing engraved certificates. Purchases receive a receipt for proof of purchase. Issue prices of new bills are not set by Treasury, but by competitive bid. They can be purchased through the Federal Reserve banks or through a broker. T-Bills are sold at t discount. The purchaser pays less than the face value that she/he will receive at maturity. T-Bills can be sold before maturity on the secondary market. |
Treasury notes and bonds are similar to Treasury bills except they have longer maturities. Notes mature in 1 to 10 years while bonds mature in 10 or more years. The usual minimum investment in these securities is $1,000 although it is sometimes higher. They are auctioned periodically. Treasury notes and bonds were issued in the form of engraved certificates and were bearer bonds. The Treasury began registering them in 1983 and as of July 31, 1986, issues all securities in book entry form. Buyers no longer receive an engraved certificate, just a statement or receipt. |
These are names given by brokers to Government securities issued with a zero coupon concept. The broker removes the interest coupons from the security and sells it at a big discount with long maturity. The interest is not paid periodically, but kept in an account and compounded. At maturity the interest payments are made in a lump sum along with the principal payment. These bonds can be sold on the secondary market before maturity. |
Many Federal agencies created by Congress have charters to issue securities. These include the Federal Home Loan Bank Board, Federal Home Loan Mortgage Corporation (FREDDIE MAC), Export-Import Bank, TVA, and Government National Mortgage Association (GINNIE MAE). They have maturity dates from 1 week to 30 years and the minimum investment ranges from $1,000 to $25,000. |
U.S. savings bonds are registered, non-transferable Treasury securities. They pay market-based rates on a minimum investment of $25 for a $50 bond. They can be purchased at almost any bank or through payroll deduction and can be redeemed after 6 months at most banks. Series EE savings bonds pay 5-1/2 percent interest for the first year with interest payments increasing ˝ percent per year until 7-1/2 percent is reached in 5 years. After 5 years series EE bonds pay 85 percent of the average return on 5 year marketable Treasury securities with a minimum of 7-1/2 percent. Interest is compounded monthly for the first 18 months and semi-annually afterwards. Maturity is 7 years with an automatic extension period up to 40 years from date of issue. |
Series HH bonds are available in exchange for EE bonds in denominations from $500 to $10,000. They provide semi-annual interest payments of 7-1/2 percent for 10 years when the principal is returned to the investor. |
Tables from government bonds traded OTC show the nominal or coupon interest rate, the scheduled month and year of maturity, the highest, lowest and last prices of the bond, and the net change from a previous period. Some tables will quote a yield figure, which is the rate of return per year on the coupon rate at current purchase price. U.S. bonds and securities are quoted in whole numbers and thirty-seconds. Thus a government bond quoted at 98.24 should be read as 98 24/32 or 98 3/4 which translates to $987.50, as they are listed on a par of 100. |
ISSUE |
BID |
ASKED |
CHANGE |
YIELD |
6 1/8, NOV 1986 |
89.11 |
90.11 |
+5 |
10.38 |
The quotation shows a security due in November 1986 with a coupon of 6-1/8 percent, a bid price of 89.11 ($893.43) and an asked price of 90.11 ($903.43). |
Prices of Government securities are determined before commissions are deducted. If a Government security is converted, the amount received may be less than the quoted value because of commissions. The above quotations do not apply to U.S. savings bonds as they are non-transferable. |
Reissued: November 13, 2003; reviewed August 28, 2009