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on the idea of interest payments are paid upfront.check this example: the market interest rate is 5%,the par value of the bond is $1,000,maturity is 10 years. Instead of issuing a bond of $1,000 par,5% coupon,and maturing in 10 years the issuer offers the bond at $700 and repays $1,000 at maturity. That is, whatever way the market change in the next 10 years the bond holder has earned the total interest payment of $300 already-or as termed above "registered interest and principal".

30-Year Treasury Bonds or T-Bonds are long term bonds issued in multiples of $1,000 with stated fixed interest rate and may be called at par, five years before maturity.

Ratings: all U.S. Government kinds of debts have the highest investment ratings,AAA.They have never defaulted.If they would the whole world economy certainly was in an unimaginable crisis.This does not mean trading U.S. securities is always giving profit because their prices change with market interest rate and condition.

Trading: U.S. Government securities market is the largest and most active market in the world.There is no exchange floor,trading takes place over the counter only. Participants include Federal Reserve, commonly called the Fed,large commercial banks,foreign banks.The largest ones consist of about 20 primary dealers,designated by the Fed (some well-known as Merrill Lynch,Citigroup,J.P. Morgan,etc). Smaller participants include small banks and brokerage firms who buy and sell securities through primary dealers. The Federal Reserve Bank's activities through this market help to manage the interest rate and are termed as "open market operations". Quotes are posted in percentage of par and changed in 1/32 of one point increments.For example, a bond quote is 99.16; that is, 99 16/32 % of $1,000 par value or 99.5% of $1,000 or $995.

Small traders or individuals can participate directly in initial offerings of U.S. Government securities through the website www.treasurydirect.gov .The process is pretty simple: register and fund the account then enroll in the available auction of the next offering.All T-bonds,Notes,short term T-Bills are available for public participants. Because of the highest investment grade rating, U.S. government securities play an important part in a portfolio.They tame the portfolio against volatility,serve as a cushion in a down market or give a reliable stream of income.

Taxation: Interest income from all U.S. Government securities is exempt from State and Local income tax but subject to Federal Taxation. It may reduce return for individual with high tax bracket so the tax aspects should be put into consideration when investing in Treasuries.

For more information visit treasurydirect.gov, its links and irs.gov.

Learn more about this author, Calvin Ng..
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