Treasury notes

Economists distinguish among currency (or hand-to-hand circulating media, which includes coins and bank notes), money equivalents (such as demand bank deposits and treasury notes), and commodities used as money (such as gold or silver bullion or consumables such as tobacco). In modern industrial societies, coins and paper money form only a small part of a nation s total money supply, money equivalents accounting for the larger portion of it. 

This can also be cast in terms of dnration properties the higher the coupon, the lower the duration and the higher the yield level the lower the duration. Given these two properties, a lO-year noninvestment grade bond has a lower duration than a cnrrent conpon 10-year Treasury note since the former has a higher coupon rate and trades at a... 

The greater the expected yield volatility, the greater the interest rate risk for a given duration and current value of a position. In the case of non-investment grade bonds, while their durations are less than current coupon Treasuries of the same maturity, the yield volatility is greater than that of current coupon Treasuries. For the 10-year Swiss government bond, while the duration is greater than for a current coupon 10-year US Treasury note, the yield volatility is considerably less than that of 10-year US Treasury notes. 

Most corporate bonds, as well as municipals and Treasury notes and bonds, pay interest on a semiannual basis. To find the interest paid during the year, multiply the par value (face or maturity value) of the bond by the annual coupon rate. This amount is then divided by 2 to determine the amount of interest paid every 6 months. It is important to know that corporate securities use a 180-day coupon period—a commercial year of 360 days or 30 days per month, whereas government securities use an exact year of 365 days (366 days for a leap year). In addition, corporate securities are delivered 5 business days after the sale, whereas government securities are delivered the same day or the day after the sale. Prices for these securities are calculated as of the delivery date. Finally, if a bond is sold between coupon dates, it will have accrued interest since the last coupon date. This accrued interest must be added to the quoted price to determine the actual amount that the investor is required to pay. 

Treasury notes have maturities of between 2 and 10 years. Because of their longer maturities, these notes have more interest rate risk associated with them and so their prices fluctuate more than T-bill prices. The U.S. government used to issue Treasury bonds, which carried maturities of 15, 20, and 30 years. The 30-year Treasury bond was just retired in November 2001. Another Treasury security is a "strip" or zero-coupon Treasury security created by separating the income streams of coupon payments and principal, wherein the holder receives no coupon payments, buys the bond at a discount, and is returned the principal at par. There is a high degree of volatility associated with strips. 

U.S. Treasury notes and bonds are coupon bonds that pay interest semiannually. For example, if the bond s coupon rate is 10 percent, a 1,000 investment will give the investor 100, paid out in two semiannual payments of 50. This represents a 10 percent return on investment. 

Treasury notes and bonds bear a stated interest rate, and the owner receives semiannual interest payments. Treasury notes have a term of more than one year, but not more than 10 years. Treasury bonds are long-term obligations issued with a term of more than 10 years. 

However, the biggest argument for buying bond mutual funds is that they provide an opportunity for investors who do not have enough money to diversify their investments, as well as a chance for investors to invest sums of money in uneven amounts. For example, an investment in U.S. Treasury notes requires minimum amounts of 1,000 and 5,000 for different issues. Investors with less than these amounts would be otherwise precluded from buying, or if they have more than the minimum but not in an exact, multiple amount, they can easily purchase shares of mutual funds where they can invest in smaller increments. Table A.l summarizes the pros and cons of investing in individual bonds versus bond mutual funds. 

Treasuries Negotiable U.S. government debt obligations, backed by its full faith and credit. They come in three types, which have varying maturities Treasury bills. Treasury notes, and Treasury bonds. Exempt from state and local taxes. 

Treasury note A negotiable debt obligation issued by the U.S. government and backed by its full faith and credit, having a maturity of between one and seven years. Also called U.S. Treasury note. 

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