U.S Government Securities

U.S. government securities, often referred to as “treasuries,” are debt instruments issued by the United States Department of the Treasury to raise funds for government operations, infrastructure projects, and other financial needs. These securities are considered among the safest investments in the world due to the backing of the U.S. government’s full faith and credit.

U.S. government securities come in various forms, including Treasury bills (short-term securities with maturities of one year or less), Treasury notes (medium-term securities with maturities ranging from two to ten years), and Treasury bonds (long-term securities with maturities greater than ten years). They are widely used by investors and financial institutions for capital preservation, income generation, and risk diversification. Additionally, U.S. government securities serve as benchmarks for interest rates and play a crucial role in the functioning of global financial markets.

Types of U.S. government securities

Treasury bills (T-bills): T-bills are short-term debt securities with maturities of one year or less. They are issued at a discount to their face value, and pay no periodic interest. Instead, investors earn a return by buying the bill at a discount and receiving the full face value at maturity.
Treasury notes (T-notes): T-notes are medium-term debt securities with maturities of 2, 3, 5, 7, or 10 years. They pay interest every six months, and are issued at par value.
Treasury bonds (T-bonds): T-bonds are long-term debt securities with maturities of 20 or 30 years. They pay interest every six months, and are issued at par value.
Treasury inflation-protected securities (TIPS): TIPS are inflation-indexed bonds that protect investors from inflation. The principal value of TIPS is adjusted for inflation, based on changes in the Consumer Price Index (CPI). They pay a fixed interest rate, and are issued at par value.
Floating rate notes (FRNs): FRNs are debt securities that have a variable interest rate, which is periodically reset based on changes in a benchmark interest rate, such as the London Interbank Offered Rate (LIBOR).
Federal agency securities: Federal agency securities are debt securities issued by government-sponsored entities (GSEs), such as Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Although these securities are not directly issued by the U.S. government, they are considered to be relatively safe investments because they are implicitly backed by the government.

Investing in US Government securities comes with some risk.

The risks include:

Default risks: Also known as credit risk, refers to the possibility that the issuer of a security (in this case, US Government) may be unable to fulfill its financial obligations, such as interest payments or repayment of principal. While US Government securities are considered relatively low-risk due to the backing of the government’s taxing authority, there is still a theoretical chance of default, which could arise from extreme and unlikely situations.
Market risk: Often referred to as systematic risk, is the potential for the value of an investment to be affected by overall market fluctuations. Changes in interest rates, economic conditions, geopolitical events, and other external factors can impact the market value of US Government securities. Even though these securities are generally considered safer, they are not immune to broader market movements.
Inflation risk: Inflation risk pertains to the potential erosion of the purchasing power of future returns due to the rise in the general price level of goods and services. If the rate of inflation surpasses the yield of US Government securities, the real value of the returns could diminish over time, impacting the investor’s ability to maintain the same level of purchasing power.
Liquidity risk: Refers to the chance that an investor might face difficulty selling an asset without significantly impacting its market price. While US Government securities are considered highly liquid compared to many other types of investments, there can still be instances where the market for these securities becomes less active, making it challenging to sell large amounts quickly without causing price distortions.

Nortlov Securities LLC is a limited liability company based in Georgia. As a registered broker-dealer and member of the Financial Industry Regulatory Authority, Inc.