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Sunday, May 22, 2011

US Treasury Products at glance

Treasury bills, notes and bonds are issued by US treasury department. Being backed by the US government, these are considered safest products in the world and besides this they are issued a very low coupon rate.
Treasury products are sold at auction and the price depends on prevailing demand and supply situation. In case of high demand treasury products trade above face value and the vice-versa.
Treasury products are resold in open market and their price keeps on fluctuating.
Despite of the price at which treasury products are brought interest is payable at face price only.
If this interest is calculated as return on purchased price, this is called yield.
So when treasury products trade at lower price than their face value, treasury yield is high.
Similarly when due to higher demand treasury products trade at price higher than face value, treasury yield is low.
The difference between treasury bills, treasury notes and treasury bonds is the maturity period.
Treasury bills have maturity period lesser than one year while treasury notes are issued for 2, 3, 5 and 10 years.
Treasury bonds have maturity period of 30 years.
Minimum investment amount in treasury products is $ 10,000 and that’s why even any individual can afford it.

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