Handbook of Finance: Financial Markets and Instruments

Chapter 20. U.S. Treasury Securities

FRANK J. FABOZZI, PhD, CFA, CPA

Professor in the Practice of Finance, Yale School of Management

Abstract: The securities issued by the U.S. Department of the Treasury include bills, notes, and bonds. The U.S. Treasury market is a closely watched market by market participants throughout the world because it plays a prominent role in the global financial market for two reasons. First, because the securities are backed by the full faith and credit of the U.S. government, they are viewed as default-free securities and therefore the yields on these securities are viewed as benchmark risk-free interest rates. Second, because of the large size of the market and the large size of each individual issue, the Treasury market is the most active and liquid sector of the global financial market.

Keywords: Treasury securities, Treasuries, or government bonds, fixed-principal securities, Treasury bills, Treasury coupon securities, Treasury notes, Treasury bonds, cash management bills, Treasury inflation-protected securities (TIPS), real rate, inflation-adjusted principal, reopening of an issue, noncompetitive bid, competitive bid, stop-out yield, high yield, bid-to-cover ratio, single-price auction, Dutch auction, on-the-run issue, current issue, off-the-run issue, when-issued market, interdealer brokers, bank discount basis, bond-equivalent yield, CD equivalent yield, money market equivalent yield, coupon stripping, corpus, principal strips, reconstitution

The ...