Today we are going to talk a little about the US Treasury bills, bonds, notes and why traders should watch them.
So lets start by taking to look at the basics of US treasuries and how traders around the world can use US Treasury markets as a barometer of whether markets are ‘risk on’ (riskier than usual).
US Treasuries are government debt issued by the United States department of the Treasury through the Bureau of the Public Debt.
They are the debt financing instruments of the US.
There are four types of marketable treasuries:
- Inflation Protected Securities (TIPS)
The Treasury bill, or ‘T-Bill,’ is the shortest-term variety, often issued at 90 days, but the term ‘T-Bill’ pertains to all treasury debt issues of less than a year.
Due to this short-term maturity and the fact that the US government has never default on a dollar of debt, it’s often considered a ‘risk-free’ rate of return.
As a general rule, the longer the maturity, the higher the rate.
If we plot a graph with yield on the vertical axis and time to maturity on the horizontal axis, this forms the ‘Yield Curve,’ which generally slopes upward, because yields increase with maturity times to compensate investors for the extra risk usually associated with longer holding periods.
So you see, having a eye scouting the US Treasury bills, bonds and notes, can be quite rewarding!