Lesson 4 of 9
The United State's Treasury issues various types of securities known as US Treasury securities. These securities are backed by full faith and credit of US government, hence, they are perceived to be credit risk-free.
Primary issue method: Sealed bid auctions on a regular cycle/single-price method. All the winning bidders are awarded securities at highest yield accepted by government (stop-out yield). The auction is generally announced many days before the auction takes place.
Secondary market: Traded over-the-counter through a network of dealers who are always ready to buy and sell with a bid and ask price.
On-the-run Vs. Off-the-run Securities Issue
On-the-run refers to the most recently auctioned issue. The older sets of securities (auctioned earlier) are referred to as off-the run issue.
The US Treasury issues three broad categories of securities, namely, fixed-principal securities, inflation-indexed securities, and treasury STRIPS.
Fixed-principal Securities
These can be classified into Treasury bills, Treasury notes, and Treasury bonds.
T-bills
Treasury notes
Treasury bonds
Inflation-indexed Treasury Securities
Treasury STRIPS
STRIPS is the acronym form Separate Trading of Registered Interest and Principal Securities. These securities are created by the private sector, where the coupon and principal payments from a Treasury note or bond are stripped and sold separately as zero-coupon securities. These are called coupon-only strips and principal-only strips. Learn more about STRIPS.