Definition
U.S. Treasuries are backed by the full faith and credit of the federal government, making them effectively risk-free for default. They come in three main forms: T-Bills (≤1 year, zero-coupon), T-Notes (2-10 years, semi-annual coupon), and T-Bonds (20-30 years). Treasury yields serve as the benchmark risk-free rate for all financial asset pricing.
lightbulb Example
An investor buys a 10-year Treasury Note at par with a 4.25% coupon. They receive $21.25 semi-annually per $1,000 face value, with guaranteed principal return at maturity.
verified_user Key Points
- Considered risk-free for default (backed by U.S. government)
- T-Bills ≤1yr, T-Notes 2-10yr, T-Bonds 20-30yr
- TIPS provide inflation protection
- Benchmark risk-free rate for all asset pricing