How to Buy Treasury Securities

How to Buy Treasury Securities

Investors have several options when it comes to purchasing Treasury securities, including Treasury bills, Treasury notes, Treasury bonds, Floating Rate Notes (FRNs), and Treasury Inflation-Protected Securities (TIPS). These securities can be accessed through brokerage accounts, exchange-traded funds (ETFs), Treasury money market funds, or the secondary market. The U.S. government also offers direct access via the TreasuryDirect website.

Key Takeaways:

• TreasuryDirect enables direct purchasing of Treasury bonds and bills from the U.S. government.
• To sell before maturity, securities must be transferred to a bank or brokerage.
• Investment in treasuries can be made through ETFs, money market accounts, and the secondary market.

TreasuryDirect

TreasuryDirect is an online platform where investors can purchase, hold, and redeem Treasury securities. Managed by the U.S. Department of the Treasury, this system allows investors to buy U.S. savings bonds and other debt securities like Treasury bills, notes, bonds, FRNs, and TIPS directly from the government.

Opening an Account:

• You need a valid Social Security Number (SSN) or Taxpayer Identification Number (TIN).
• An email address and a U.S.-based address are required.
• A checking or savings account is also needed to fund purchases.
• Investors can select the type of securities, the term, source of funds, and the amount they wish to purchase.

Purchase Details:

• Treasury securities are typically issued to an account within two business days for savings bonds and one week for other securities like bills, notes, bonds, FRNs, and TIPS.
• The minimum purchase for savings bonds is $25, and for T-bills, notes, bonds, and TIPS, purchases can range from $100 to $10 million.
• Investors should note that Treasuries bought through TreasuryDirect cannot be redeemed before maturity. To sell, they must be transferred to a broker and sold on the secondary market.

Treasury Auctions

Investors holding TreasuryDirect accounts can participate in Treasury auctions. In 2023, there were 428 public auctions totaling $22 trillion in Treasury securities. The Treasury Department announces auction details, including dates, amounts, terms, and conditions.

Types of Bids:

• Noncompetitive Bids: These are limited to $10 million and guarantee that the bidder will receive the desired amount at a price set by the auction’s competitive bidders.
• Competitive Bids: These specify expected yields or rates and may be filled partially or not at all.

Treasury auctions are essential for the allocation of new debt securities, and successful bidders are notified and provided with the securities purchased.

Buying Through Banks and Brokerages

• ETFs: Treasury-focused ETFs are traded like stocks and offer access to various Treasury securities. These ETFs can be held in IRAs and other tax-advantaged accounts.
• Money Market Accounts: Treasury money market mutual funds offer low fees and are typically tied to short-term Treasury bills.
• Secondary Market: Many brokerages offer full access to the bond market, including Treasury bonds. Some brokers offer commission-free trades for Treasury securities, and bonds bought on the secondary market can be held in retirement accounts.

Top Online Brokers:

• Fidelity Investments: Best for low costs, with $0 fees for stock/ETF trades.
• TD Ameritrade: Great for beginners, offering $0 fees for stock/ETF trades.
• Interactive Brokers: Ideal for advanced traders with low fees for both U.S. and international markets.

Selling Treasuries

To sell Treasury securities held in TreasuryDirect accounts, investors must transfer the securities to a bank, broker, or dealer account and then place a sale order. A Transfer Request Form is required to move securities from TreasuryDirect.

Short-Term Treasury Bills

Investors can buy and sell short-term Treasury bills on TreasuryDirect or through brokers and banks. The maximum purchase in a single auction is $10 million for noncompetitive bids or 35% of the offering amount for competitive bids.

Canadian Treasury Bills

Similar to U.S. Treasury bills, Canadian Treasury bills can be purchased from a financial institution or broker, with a minimum investment of 1,000.

Treasuries are a safe and reliable option for diversifying an investment portfolio. Backed by the U.S. government’s full faith and credit, these securities are low-risk and provide steady income, making them ideal for retirement portfolios.