Treasuries
Definition
Negotiable U.S. Government debt obligations, backed by its full
faith and credit. Exempt from state and local taxes. Treasuries are
issued by the U.S. government in order to pay for government
projects. The money paid out for a Treasury bond is essentially a
loan to the government. As with any loan, repayment of principal is
accompanied by a specified interest rate. These bonds are
guaranteed by the "full faith and credit" of the U.S. government,
meaning that they are extremely low risk (since the government can
simply print money to pay back the loan). Additionally, interest
earned on Treasuries is exempt from state and local taxes. Federal
taxes, however, are still due on the earned interest. The
government sells Treasuries by auction in the primary market, but
they are marketable securities and therefore can be purchased
through a broker in the very active secondary market. A broker will
charge a fee for such a transaction, but the government charges no
fee to participate in auctions. Prices on the secondary market and
at auction are determined by interest rates. Treasuries issued
today are not callable, so they will continue to accrue interest
until the maturity date. One possible downside to Treasuries is
that if interest rates increase during the term of the bond, the
money invested will be earning less interest than it could earn
elsewhere. Accordingly, the resale value of the bond will decrease
as well. Because there is almost no risk of default by the
government, the return on Treasury bonds is relatively low, and a
high inflation rate can erase most of the gains by reducing the
value of the principal and interest payments. There are three types
of securities issued by the U.S. Treasury (bonds, bills, and
notes), which are distinguished by the amount of time from the
initial sale of the bond to maturity.
Singapore government too,issued such instruments.....Give u are
serious about it. Is better that you talk to your banker about it.
