Treasury Bonds

Few things in the investing world are considered virtually free of risks, and high on that short list are Treasury bonds.

Treasury bonds are debt issued by the U.S. government. They are issued in $1000 denominations and mature in anywhere from three months to 30 years. For investors, Treasury bills (which mature in three months to a year), notes (maturing in two to 10 years) and bonds (maturing in 30 years), serve two very important functions. First, as an investment opportunity, they offer fairly low but secure return rates, or yields. Second, Treasuries, especially the benchmark 10-year Treasury note, serve as a primary indicator of interest rates, which are a major influence on the overall economy.

First, let's examine Treasurys as an investment opportunity. Treasury bonds are considered the ultimate in safety; the risk of default is practically nonexistent. During times of uncertainty in the stock market, investors often take money out of stocks and put it into Treasuries, which is often called a flight to quality. In addition to the comfort they provide, Treasuries also outperform other, higher-yielding bonds during times of economic weakness and the interest payouts are exempt from state income taxes. ...