How to Buy Treasury Bills, Bonds, and Notes

By Laurel Tincher · May 18, 2024 · 6 minute read

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How to Buy Treasury Bills, Bonds, and Notes

Investors can buy Treasury bills, bonds, and notes a few ways, including through TreasuryDirect, through a broker or bank, or even through an ETF or mutual fund. Treasury bills, bonds, and notes are stable, profitable, and less-risky investments that can be a key part of a diverse investment portfolio. Learning how to purchase Treasuries may be important, regardless of your experience level with fixed-income investments.

With the full faith and credit of the US government behind them, these government-issued securities are among the least-risky investment options out there. We’ll explore the principles of buying Treasury bills, bonds, and notes in this article.

Key Points

•   Treasury bills, bonds, and notes can be purchased through TreasuryDirect, banks, or brokers.

•   These securities are backed by the full faith and credit of the U.S. government, making them low-risk investments.

•   Investors can also buy Treasury securities indirectly through ETFs or mutual funds.

•   TreasuryDirect allows direct purchases without a broker, saving on transaction costs.

•   Investing in Treasury securities through ETFs and mutual funds offers ease and diversification.

How Can You Buy US Treasuries?

Both individual and institutional investors can invest in U.S. Treasury bonds through a variety of methods. Getting them straight from the US Department of the Treasury through their web portal, TreasuryDirect, is one of the easiest ways to do so.

With the use of this platform, investors can purchase Treasury bills, bonds, and notes straight from the government. Alternatively, investors can purchase Treasuries via a financial institution or brokerage house. Treasury securities are accessible through a number of brokerages, which also offer a variety of services and choices to help investors make purchases.

Investors can also purchase Treasury assets indirectly through mutual funds, exchange-traded funds (ETFs), or investment vehicles dedicated to Treasury securities. This allows investors to have diversified exposure to Treasuries in a single investment instrument.

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1. Direct through TreasuryDirect

The U.S. Department of the Treasury offers an online platform called TreasuryDirect for investors who want direct access to U.S. Treasury securities. People can take part in Treasury auctions, which are public sales of recently issued securities, through TreasuryDirect.

Pros

•   Buying Treasury securities directly from TreasuryDirect can save transaction costs by eliminating the need for a brokerage middleman.

•   With capabilities like managing maturing securities and reinvesting interest, investors can easily manage their Treasury holdings through the site.

Cons

•   A less user-friendly interface than an online broker.

•   Less customer service in comparison to brokerage firms.

Purchasing Limits

Purchase restrictions may apply, limiting the quantity of Treasury securities that a person can acquire in a given period of time. The minimum amount that you can purchase of any given Treasury Bill, Note, Bond, TIPS, or FRNs is $100. Additional amounts must be in multiples of $100. The maximum amount of Treasury bills that you can buy in a single auction is $10 million if the bids are noncompetitive, or 35% of the offering amount for competitive bids.

2. Broker or Bank

Investors can buy U.S. Treasury bonds through banks or brokerage houses, which provide access to secondary market transactions as well as primary market Treasury auctions.

Pros

•   Banks and brokers offer extra support and services, such as financial advice, research tools, and customer help.

•   Certain brokerage houses give investors access to the primary and secondary markets, giving them a wide selection of Treasury securities and investing choices.

Cons

•   Transaction fees and costs associated with utilizing a bank or broker may increase the total cost of investing in Treasuries.

Purchasing Limits

Purchasing restrictions may apply, depending on the bank’s or brokerage company’s specific policies.

3. ETFs and Mutual Funds

Investments in mutual funds or ETFs with a Treasury concentration are an option for investors who want exposure to U.S. Treasuries without having to buy individual securities directly. These investment vehicles combine money from many individual investors and use it to buy a variety of Treasury securities.

Pros

•   The ease of use and accessibility of ETFs and mutual funds, which provide investors with a diverse portfolio of Treasuries with a single investment, is one of their main benefits.

•   These funds usually offer expert supervision and management.

•   Mutual funds and ETFs also provide liquidity, enabling investors to purchase and sell shares on the secondary market at any time during the trading day.

Cons

•   Particularly for long-term investors, expense ratios and management fees associated with mutual funds and ETFs can gradually reduce returns.

•   The costs of purchasing and selling securities inside the fund, such as brokerage commissions and bid-ask gaps, are also indirectly paid for by investors.

•   While mutual funds and ETFs provide diversification and relatively low risk, they carry some risk of market volatility and possible losses.

Purchasing Limits

ETFs usually have no minimum investment limits, making them widely accessible. There may be minimum initial investment restrictions for mutual funds, which could prevent certain individuals from participating. Ongoing mutual fund contributions, however, are frequently flexible, enabling investors to gradually make lower installments.

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Portfolio Considerations When Buying Treasuries

When incorporating U.S. Treasuries into a portfolio, investors should consider several key factors to optimize their investment strategy. Due to their low correlation with other asset classes, treasuries are essential for offering stability and diversification within a portfolio. They are frequently seen as a safe haven investment, especially in volatile markets or uncertain economic times – though it’s important to remember that no investment is completely safe.

Using Treasury bill (T-bill) and Treasury bond (T-bond) ladders is one way to optimize the returns on Treasuries. Buying Treasury bills with staggered maturities — typically a few weeks to a year — is known as a T-bill ladder. Because T-bills mature on a regular basis, this strategy offers investors a consistent flow of income and liquidity, allowing them to reinvest the proceeds or access cash as needed. T-bond ladders, on the other hand, are a way to spread out interest rate risk and keep exposure to longer-term rates by buying Treasury bonds with different maturities.

Investing in a group of Treasury-focused ETFs with staggered durations is known as an ETF ladder. ETF ladders enable investors to manage interest rate risk and take advantage of a variety of yields.

Whichever strategy is chosen, adding Treasuries to a portfolio can offer a good balance between risk and return, especially for investors who prioritize income generation and capital protection.

The Takeaway

Investment funds, brokers, and TreasuryDirect are a few of the ways to buy U.S. Treasury securities. Additionally, by combining ETF ladders with effective portfolio management techniques like T-bond and T-bill ladders, investors can maximize the contribution of Treasuries to their investment portfolios.

Investors wanting to optimize returns on their investments might reduce risk by diversifying across a range of Treasury securities and maturities. Securities are a low risk investment that can be a great way to diversify one’s portfolio.

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FAQ

How do I buy Treasury notes and bonds?

A few of the most common ways that investors can buy Treasuries is through TreasuryDirect.gov, a bank, broker, or dealer.

Do you pay taxes on T-Bills?

Interest from Treasury bills (T-bills) is subject to federal income taxes, but not state or local taxes.

What happens when a T-Bill matures?

When a Treasury bill matures, you are paid its face value. You can hold a bill until it matures or sell it before it matures.


Photo credit: iStock/kate_sept2004

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