The U.S. Government obtains loans by issuing various types of fixed-income securities. These securities are considered to be of the highest credit quality since they are backed by the government itself The most important government securities are sketched here.
U.S. Treasury bills are issued in denominations of $10,000 or more with fixed terms to maturity of 13, 26, and 52 weeks. They are sold on a discount basis, Thus a bill with a face value of $10,000 may sell for $9,500, the difference between the price and the face value providing the interest. A bill can be redeemed for the full face value at the maturity date New bills are offered each week and are sold at auction They are highly liquid (that is, there is a ready market for them); hence they can be easily sold prior to the maturity date
U.S. Treasury notes have maturities of I to 10 years and are sold in denominations as small as $1,000, The owner of such a note receives a coupon payment every 6 months until maturity, This coupon payment represents an interest payment and its magnitude is fixed throughout the life of the note. At maturity the note holder receives the last coupon payment and the face value of the note. Like Treasury bills, these notes are sold at auction.
U.S. Treasury bonds are issued with maturities of more than 10 years. They are similar to Treasury notes in that they make coupon payments, However, some Treasury bonds are callable, meaning that at some scheduled coupon payment date the Treasury can force the bond holder to redeem the bond at that time for1 its face (par) value,
U.S. Treasury strips are bonds that the U S. Treasury issues in stripped form, Here each of the coupons is issued separately, as is the principal, So a 10-year bond when stripped will consist of 20 semiannual coupon securities (each with a separate CUSIP1) and an additional principal security Each of these securities generates a
'The Committee on Uniform Securities Identification Procedures (CUSIP) assigns identifying CUSIP numbers and codes to ¡iii securities single cash flow, with no intermediate coupon payments Such a security is termed a zero-coupon bond.
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