The Treasury market represents the debt of the United States. By law, government securities are issued by the U.S. Treasury and are backed by the full faith and credit of our government. As such, they represent the safest investment available (as good as cash), and differ mainly in the length of their maturity or life.
The Treasury's debt is divided into two areas: first, the non-marketable segment which is made up mainly of saving bonds, special government insurance and trust funds. The other area which is the concern of this article is the large about $55 billion marketable interest-bearing debt. At present this figure is comprised of $157 billion in Treasury bills, $25 billion in notes, and $47 billion in bonds. T-Bills
Treasury bills are issued every Monday with a thirteen-week and a twenty-six week maturity. Once a month, a fifty-two week bill is sold. Bills are purchased at a discount for par. The difference between the purchase price and the redemption or sale price represents the income. This income is exempt from both state and local taxes but is subject to federal taxes. Bills come in minimum denominations of $10,000.
Buyers do not take physical delivery of bills, but the ownership is entered upon the books of the Treasury and a check is sent to the owner at maturity. Notes & Bonds
Notes and bonds are issued periodically by the Treasury as their needs dictate. They differ in that a note matures in ten years or less, and a bond maturity is beyond ten years. Notes and bonds are similar in that they are issued with a common (a fixed rate of interest), which represents income. Like bills, this income is exempt from state and local taxes but is subject to federal taxes.
Bonds and notes are sold in mimimum denominations of $1,000 (unless otherwise stated), and may be issued in either registered or coupon (bearer) form.
The benefit of having securities is that your name and tax ID number (Social Security number, in the case of an individual), appears on the books of the Treasury (as well as on the face of the security sent to you), and you receive a mail or check for the interest every six months. It is a safety factor, for should you lose a registered security, it will be non-negotiable to the finder. Coupon securities, however, are negotiable to the bearer, hence the name "bearer" or coupon bonds.
These three securities may be initially obtained from the Treasury on a subscription basis where the purchaser submits either a noncompetitive or a competitive bid for offering. On occasion, the Treasury may set the terms for a new issue and then allow the public to subscribe to the offering.
How can an investor in metropolitan Washington obtain these new Treasury offerings?
The simplest and least expensive way is to subscribe directly by either going to the U.S. Treasury at 15th and Pennsylvania Ave. Nw, Room 2134, or by writing to the Treasury (the letter should be postmarked at least one day before bidding date.)
In the case of bills: The person should come to the Treasury before 1:30 p.m. on any Monday (on Friday if Monday is a holiday). The person should bring with them a cashier's check, or a certified check made payable to the "Bureau of Public Debt" for the face amount of their purchase. The proper forms must be completed as well.
For notes and bonds, once the Treasury has announced an offering, as individual may come to the Treasury with a personal check in the amount of 5% of the face value of their purchase, (unless otherwise stated), and fill out the required forms. After the sale, the individual has a certain number of days (detailed in the Treasury offering circular) to put up thebalance of the money.
The financial pages of major papers give notification of pending offerings. Official information concerning Treasury offerings can be obtained from the Treasury or any Federal Reserve Bank. Subscriptions may also be entered in this area at the Federal Reserve Banks in Baltimore and Richmond.
Once the new offerings have been completed, trading markets are maintained by a network of some 36 primary government dealers around the country. This enables investors to buy or sell government securities to fit their needs. Federal Agency Market
The U.S. Federal Agency market is diverse and comprised mainly of $125 billion in issues: The Farm Credit System (Banks of Cooperatives, Federal Intermediate Credit Banks, Federal Land Banks), in the amount of $35 billion: $19 billion Federal Home Loan Banks; $31 billion of Federal National Mortgage Association (Fannie Maes) securities; $40 billion of Government National Mortgage Association Modified Pass-Through Certificates (Ginnie Mae Pass-Throughs). The investment quality of agencies is so highly regarded that they are eligible as security for advances by the Federal Reserve to member banks.
All of the above securities are marketed through fiscal agents, except for the Ginnie Maes, which are bid for competitively by serveral syndicates. The fiscal agents through long through long - established syndi work through long established syndicates in retailing their securities.
The Co-ops are issued in bearer forms in mimimums of $5,000 as are FICBs. Land Banks come in registered and bearer form in minimum amounts of $1,000 (the only agency that small). The U.S. government has expressed no liability for these Farm Credit System securities. They are exempt from state and local taxes but they are subject to Federal taxes.
The Home Loans are issued in bearer form only, with a $10,000 minimum. They, too, are exempt from state and local taxes but are subject to Federal taxes.
Fannie Maes come in bearer form only, in a minimum size of dicates in retailing their securities, $10,000. Unlike the other agencies mentioned, they are subject to state and local taxes as well as federal taxes.
Ginnie Maes are issued in registered form only, in minimums of $25,000 and are subject to state and federal income taxes.
Trading in agency securities is carried on through the government dealers. These securities generally afford a slightly higher return than comparable Treasury instruments.
There are other federal agencies which are backed by the U.S. Government, but are outside the scope of this article. Most brokerage houses retail agency securities to the public.