What are Government Securities?

Summary 

What are government securities? 

Issued by governments to fund various operations, government securities are a range of investment products such as Treasury bills, bonds, and notes.  

US government securities are issued by the US Treasury. Three of the biggest advantages of these products include potential periodic interest or coupon payments, the promise of full repayment of invested principal at maturity of the security, and a low level of risk due to government backing.  

Find out more about what government securities are and how an Unbiased SEC-regulated financial advisor can help you to make smart financial investments in these products. 

Types of government securities 

If you’re looking at this investment option, you’ll find many different types of government securities to choose from. The various types include Treasury bills, Treasury notes, savings bonds, Treasury bonds, zero-coupon bonds, inflation-indexed bonds, floating rate notes, and municipal bonds. 

The funding generated by the sale of United States Treasury Securities is used for necessary operating costs as well as special infrastructure construction and military products. You can buy a security and hold on to it until the maturity date or sell it for a profit before the maturity date on a secondary market. 

Treasury bills  

Also known as a T-Bill, a Treasury bill is a short-term US government debt obligation backed by the Treasury Department. These products have a maturity of anything between a few days and one year. 

While Treasury bills have a face value, such as $1,000, $5,000, or $10,000, you can usually buy them at a discount rate. When the product matures, the government pays the entire amount. You can also purchase Treasury bills, known as cash management bills. These bills have terms that usually last for a few days only.  

This type of government security has a few advantages and disadvantages. A couple of advantages include Treasury bills being one of the safest investments you could make and the potential for a stable income due to these bills paying a fixed rate of interest. A disadvantage is the possibility of losing out on higher rates if the interest rate rises. An example of this was the 0.06% yield on a four-week Treasury bill and the 0.08% yield on a one-year Treasury bill as of September 10, 2021. 

Treasury notes  

A Treasury note is a US government security with a fixed interest rate and a maturity between two and ten years. These marketable debt securities are also known as T-Notes. 

These products are available at face value, at a discount, or at a premium. You can purchase them by using a noncompetitive bid that requires you to accept an auction-determined interest rate or using a competitive bid in which you specify how many notes you want and the amount of return you wish to receive. 

If you purchase a Treasury note, you can expect it to pay interest every six months until it reaches its maturity date. You can redeem the entire face value when the note reaches that date. 

This type of government security has a few advantages and disadvantages. Two of the advantages include low risk and tax benefits. A disadvantage is the interest rate risk associated with these products. 

An example of a Treasury note is the 10-year US Treasury Note. This note has a 10-year maturity and pays interest every six months. 

Saving bonds 

A savings bond is a United States Treasury Security that offers a modest guaranteed return. These products are issued with zero coupons at a discount, which means they pay a fixed rate of interest over a specified time period of anything between one and 30 years. 

Savings bonds combine a fixed interest rate with inflation. You can get your money back at any time after your savings bond has reached the five-year mark. The lowest amount you can contribute to a savings bond is $25, while the lowest amount you can contribute to a paper bond is $50. You can contribute as much as $10,000 within a year to a savings bond and as much as $5,000 within a year for paper bonds. 

Like other types of government securities, savings bonds come with advantages and disadvantages. Two advantages include a potentially higher yield than some savings accounts and US government backing. A disadvantage is that the US Department of Treasury keeps the interest that accrues over the last three months before the bond’s maturity date. 

A good example of these products is Series EE savings bonds. These bonds are sold at 50% of their face value and take 20 years to mature to their full value. 

Treasury bonds 

Treasury bonds are government securities that have 20- or 30-year maturities. Also called T-bonds, these products are issued by the US Treasury.  

These bonds earn periodic interest until maturity. These periodic payments are known as coupon payments. The principal will be returned to you when the bond reaches maturity. 

Treasury bonds play an important role in the world’s financial market, as they are a reliable source of funding for government expenses and public projects. These US government securities also act as an interest rate benchmark. Investors can use these products to assess the risk of other investments. 

Some advantages of Treasury bonds include low risk and being a stable source of income through regular coupon payments. Low returns are one of the disadvantages of these products.  

An example of this type of government security is a 20-year, $1,000 T-bond bought on an auction using an account at TreasuryDirect.gov or via a private broker. This is a long-term investment, but it forms part of many people’s portfolios. 

How to buy government securities?  

There are a number of different ways you can buy government securities. One option is to purchase products through a financial broker, dealer, or institution.  

You can also buy these products through the US Treasury and the US Treasury-sponsored Treasury Direct online platform.  

You will need to go through a broker if you want to purchase international Government Securities. $100 is the minimum amount of money you need to buy Treasury bills, bonds, notes, and other products. 

Tips on buying government securities 

The many different types of government securities provide a number of low-risk investment options that offer a modest regular income. Relatively affordable, they are easy to purchase through the US Treasury and brokers, as well as online. 

Let an SEC-regulated financial advisor guide you to the best government securities to suit your investment needs. Unbiased can help you to find a financial advisor who’ll enhance your portfolio. Simply answer a few questions to help us find the right match.