DEFINITION of the Treasury at 30 years
The 30-year Treasury is a debt instrument of the United States Treasury with a 30-year maturity. The 30-year Treasury was once a US bond, but most now consider the 10-year Treasury as the benchmark.
DISTRIBUTION OF 30 YEAR TREASURY
The US government borrows money from investors by issuing debt securities through its Department of the Treasury. Debt securities that can be purchased from government include treasury bills, banknotes and Treasury Inflation Protected Securities (TIPS). Treasury bills are negotiable securities issued for terms of less than one year and treasury bills are issued with maturities of two to ten years. TIPS are marketable securities, the principal of which is adjusted for changes in the Consumer Price Index (CPI). When there is inflation, the principal increases. When deflation sets in, the principal decreases. Longer-dated US Treasuries can be purchased in the form of US Savings Bonds or Treasury Bonds.
Treasury bills are long-term debt securities issued with a maturity of 30 years from the date of issue. These marketable securities pay interest semi-annually or every six months until their maturity. At maturity, the investor receives the nominal value of the bond. The 30-year treasury will generally pay a higher interest rate than the shorter treasury bills to compensate for the additional risks inherent in the longer term. However, compared to other bonds, treasury bills are relatively safe as they are backed by the United States government.
The price and the interest rate of the 30-year Treasury bond are determined at auctions where they are fixed at par, at premium or at discount at par. If the yield to maturity (YTM) is higher than the interest rate, the bond price will be issued at a discount. If the YTM is equal to the interest rate, the price will be equal to the par. Finally, if the YTM is lower than the interest rate, the price of treasury bills will be sold at a premium at par. In a single auction, a bidder can purchase up to $ 5 million in bonds by non-competitive tender or up to 35% of the amount of the initial bid by competitive tender. In addition, the bonds are sold in increments of $ 100 and the minimum purchase is $ 100.
US savings bonds, particularly Series EE savings bonds, are non-marketable securities that bear interest for 30 years. Interest is not paid periodically. Instead, the interest accumulates and the investor receives everything when he redeems the savings bond. The bond can be redeemed after one year, but if it is sold before five years from the date of purchase, the investor will lose interest for the last three months. For example, an investor who sells the savings bond after 24 months will only receive interest for 21 months.
Since the United States is considered a very low risk borrower, many investors view 30-year Treasury interest rates as an indication of the state of the broader bond market. Normally, the interest rate decreases with increased demand for 30-year Treasury securities and increases with lower demand. The S&P U.S. Treasury Bond Current 30-Year Index is a single-unit index comprising the latest 30-year US Treasury bill issued. It is a market value weighted index that seeks to measure the performance of the Treasury bond market.