BUYING AND SELLING U.S. TREASURY SECURITIES

1. What types of U.S. Government securities are available?
Treasury securities come in three basic types: Treasury Bills (T-Bills), Treasury Notes (T-Notes), and Treasury Bonds (T-Bonds).

The main differences between Treasury Bills, Notes, and Bonds lies in the minimum dollar amounts required to invest in them and the length of their maturities.

TREASURY BILLS are short-term loans to the U.S. Government and reach maturity in a year or less. Unlike T-Notes or T-Bonds, T-Bills do not pay interest before maturity. Rather, they are sold at a discount to their face ("par") value, and the investor receives the difference between the original purchase price and the par value once the bill matures.

TREASURY NOTES and TREASURY BONDS are sometimes called "coupon securities." They pay a stated interest rate that is determined at the time of their original sale. T-Notes have a term of at least one year, but not more than ten years. T-Bonds are long term obligations with a term of ten years or more. The investor receives interest payments on a semi-annual basis and, once the security reaches maturity, the investor will receive the full par value. The interest payments are federally taxable, but exempt from local and state taxes.

2. What's so good about U.S. Government securities?
T-Bills, T-Notes, and T-Bonds securities all share in common the fact that they are all free of credit risk as they are backed by the full faith and credit of the U.S. Government. What this means is that, as long as the U.S. Government is alive and kicking, your investment is 100% secure. You will always know exactly when and how much your investment will return. No other bond investment, including mutual funds, can make this claim.

The other advantage to investing in U.S. Government securities is that they are the only fixed-income instruments that the individual investor can purchase without having to go through a broker or financial institution. This means that there are no commissions or fees to pay, and that the entire amount of your purchase goes towards your investment.

When poor economic conditions are on the horizon, investors are more likely to put their money in investments that offer the highest degree of security. Because no other fixed-income instruments can lay claim to a higher credit quality than U.S. Government securities, they are the ideal hedge against economic downturns.

3. How does the government sell Treasury securities?
By far, the easiest and cheapest way to trade in Treasury securities is to go directly to the source, the Federal Reserve Bank. T-Bills, T-Notes, and T-Bonds are sold through competive and non-competive bidding at more than 150 auctions held throughout the year. When buying Treasuries directly from the Fed, you pay no transaction fees.

4. How do I buy T-Bonds from the Fed?
If you live near one of the Federal Reserve branches, you can go there directly to purchase Treasuries. Otherwise, you can call them to get more information about buying Treasury securities directly. You can also obtain information and transact business on the web by visiting the Public Debt website and opening a Treasury Direct account.

5. How do I find out when Treasury auctions are held?
Up-to-date information on future bond auctions is available from Federal Reserve Banks. Many newspapers also report auction schedules. Every February, May, August, and November, The Bureau of Public Debt website posts a 3-month calendar of tentative auction dates. Though these dates do not become official until 7-10 days before the actual auction, the scheduled dates are rarely changed.

6. How do I make a bid?
Once the Treasury announces an auction, investors are invited to submit bids. Depending on the type of bid you want to make, you can submit your offer over the Internet, by phone, or by mail.

7. What are the different types of bids I can make?
There are two types of bids:

      Non-competitive bid: This is the most common type of bid. The investor agrees to pay the fixed market price for the Treasury security which is determined by the auction. This type of bid can be made over the Internet, by phone, or by mail.

      Competitive bid: These are bids in which the investor specifies a discount rate for the yield at which one is willing to purchase the security. The yield must be specified to three decimal places (e.g. 7.123%). Common fractions may not be used.

If the bid falls within the range accepted at auction, the investor will be awarded the security. Unlike Non-competitive bids, these bids may or may not be accepted at auction. Competitive bids must be made in written form. For more information on this process, contact a Federal Reserve Bank Servicing Office of the Bureau of Public Debt's Capital Area Servicing Center.

8. What is the minimum amount I can invest in U.S. Government securities?
For all Treasury securities -- bills, notes, and bonds -- the minimum purchase amount is $1,000. Bids must be made in multiples of $1,000. Noncompetitive bids from a single bidder may not exceed $1,000,000 for the same offering of Treasury Bills, or $5,000,000 for the same offering of Treasury Notes or Bonds.

9. What happens when my bid is accepted?
When you buy a Treasury security, you do not receive an actual certificate. Your purchase will be recorded in book-entry form and held directly in by Public Debts Treasury Direct system, or by the financial institution or broker on behalf of the investor.

10. How do I receive my interest payments?
Interest payments on T-Notes and T-Bonds is mailed to you directly on a semi-annual basis. The interest rate is set at the time of auction and will not fluctuate over the term maturity. If you plan to be out of town on the date you should receive your interest payment, you can submit a temporary change of address form to the U.S. Postal Service.

11. Can I redeem my Treasury security before its maturity date?
In most cases the answer is no, unless, by the terms of its issue, the issue you purchased is "callable." Some bonds issued by the Treasury Department prior to 1985 are subject to call by the Treasury Department before their final maturity. If called, these bonds stop earning interest on the date called. These details surrounding each issue of bills, notes, or bonds will always be announced prior to each Treasury auction.

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