When the federal government needs money, it borrows funds from the public by issuing U.S. Treasury bills, bonds and notes. The rats of interest that the Treasury pays the investors are known as treasury bond rates. The ongoing Treasury rates form an important yardstick for measuring economic state and are of much significance to the investors.
The safest investment that one could ever have is offered by way of securities issued by U.S. Treasury. In fact, these are known to have zero risk and the rates offered by the rest of the securities are compared to Treasury bond rates to determine the latter’s relative level of risk. Bond having a given credit rating is judged as per its spread over similar Treasury bond. For instance, bonds having AA rating may carry rate that’s higher than the Treasury rate by one percent, while bonds rated as –A may offer a rate of 1.6 percent above Treasury bond rates . The market rates of mortgages are also influenced by ongoing treasury rates.
Treasury debts come in many kinds of maturities. For example, Treasury bills come with maturities of up to twelve months, while Treasury notes may have a maturity period of two to ten years. Treasury bonds have a maturity period of thirty years. Investors can buy Treasury bills at discounted prices and earn interest on their face value till the maturity of bills. Interest on Treasury bonds and notes is paid twice a year, at an interval of six months each.
There is quite a variation in Treasury rates. The maturity period of Treasury securities may vary from as short as thirty days to as long as thirty years. When comparing Treasury rates to other forms of investments, it’s imperative for the investor to apply the rate of the right maturity. Information concerning the Treasury rate would specify its maturity like one-year Treasury rate or the rate of a ten-year Treasury note.
The usual Treasury rates are for one-year, ten-year and thirty-year. The ARM or adjustable rate mortgages is generally based on the one-year treasury rate, whereas the rates for corporate bonds are indexed to the ten year Treasury note and the rates for fixed mortgage of thirty years is strongly related to long-standing interest rates.
The yield curve
Depiction of various Treasury rates, as per their maturity periods in a graphical manner is known as yield curve. The curve, at a glance, tells us the Treasury rate of each maturity and the correlation between maturity and interest rate of Treasury debt securities. The website of U.S. Treasury, named USTreas.gov makes it easy for investors to have a look at the existing yield curve. Investors can easily check the present Treasury bond rates of all maturities of up to thirty years.