Treasury bond
Treasury bonds and Treasury notes are two types of marketable United States Treasury securities. The Treasury issues both nominal bonds, the subject of this article, and inflation-protected bonds.[note 1] Treasury bonds possess the advantages inherent in treasury securities: the bonds are backed by the full faith and credit of the US government; [1] treasury bond interest income is exempt from state and local income tax; and treasury bonds currently being issued are not callable; although some older issues available on the secondary market are callable.
Nominal Treasury bonds are issued in two maturity ranges: [2]
- Notes have a range between one year and ten years;
- Bonds have a range greater than ten years.
In this article both notes and bonds are referred to as "bonds".
Purchasing bonds
Treasury bonds can be purchased through brokerages and banks, as well as through an individual or entity account at TreasuryDirect. [3] However, TreasuryDirect cannot be used to purchase bonds intended for IRAs.[4]
Role in a portfolio
Historical returns
The following table provides return data for the 10-year Treasury bond for the years spanning 1928 through 2014. Inflation data, as measured by the CPI-U is also provided. [5]
| Year | T-bond | CPI-U |
|---|---|---|
| 1928 | 0.84% | -1.20% |
| 1929 | 4.20% | 0.00% |
| 1930 | 4.54% | -2.70% |
| 1931 | -2.56% | -8.90% |
| 1932 | 8.79% | -10.30% |
| 1933 | 1.86% | -5.20% |
| 1934 | 7.96% | 3.50% |
| 1935 | 4.47% | 2.60% |
| 1936 | 5.02% | 1.00% |
| 1937 | 1.38% | 3.70% |
| 1938 | 4.21% | -2.00% |
| 1939 | 4.41% | -1.30% |
| 1940 | 5.40% | 0.70% |
| 1941 | -2.02% | 5.10% |
| 1942 | 2.29% | 10.90% |
| 1943 | 2.49% | 6.00% |
| 1944 | 2.58% | 1.60% |
| 1945 | 3.80% | 2.30% |
| 1946 | 3.13% | 8.50% |
| 1947 | 0.92% | 14.40% |
| 1948 | 1.95% | 7.70% |
| 1949 | 4.66% | -1.00% |
| 1950 | 0.43% | 1.10% |
| 1951 | -0.30% | 7.90% |
| 1952 | 2.27% | 2.30% |
| 1953 | 4.14% | 0.80% |
| 1954 | 3.29% | 0.30% |
| 1955 | -1.34% | -0.30% |
| 1956 | -2.26% | 1.50% |
| 1957 | 6.80% | 3.30% |
| 1958 | -2.10% | 2.70% |
| 1959 | -2.65% | 1.08% |
| 1960 | 11.64% | 1.50% |
| 1961 | 2.06% | 1.10% |
| 1962 | 5.69% | 1.20% |
| 1963 | 1.68% | 1.20% |
| 1964 | 3.73% | 1.30% |
| 1965 | 0.72% | 1.60% |
| 1966 | 2.91% | 3.00% |
| 1967 | -1.58% | 2.80% |
| 1968 | 3.27% | 4.30% |
| 1969 | -5.01% | 5.50% |
| 1970 | 16.75% | 5.80% |
| 1971 | 9.79% | 4.30% |
| 1972 | 2.82% | 3.30% |
| 1973 | 3.66% | 6.20% |
| 1974 | 1.99% | 11.10% |
| 1975 | 3.61% | 9.10% |
| 1976 | 15.98% | 5.70% |
| 1977 | 1.29% | 6.50% |
| 1978 | -0.78% | 7.60% |
| 1979 | 0.67% | 11.30% |
| 1980 | -2.99% | 13.50% |
| 1981 | 8.20% | 10.30% |
| 1982 | 32.81% | 6.10% |
| 1983 | 3.20% | 3.20% |
| 1984 | 13.73% | 4.30% |
| 1985 | 25.71% | 3.50% |
| 1986 | 24.28% | 1.90% |
| 1987 | -4.96% | 3.70% |
| 1988 | 8.22% | 4.10% |
| 1989 | 17.69% | 4.80% |
| 1990 | 6.24% | 5.40% |
| 1991 | 15.00% | 4.20% |
| 1992 | 9.36% | 3.00% |
| 1993 | 14.21% | 3.00% |
| 1994 | -8.04% | 2.60% |
| 1995 | 23.48% | 2.80% |
| 1996 | 1.43% | 2.90% |
| 1997 | 9.94% | 2.30% |
| 1998 | 14.92% | 1.60% |
| 1999 | -8.25% | 2.20% |
| 2000 | 16.66% | 3.40% |
| 2001 | 5.57% | 2.80% |
| 2002 | 15.12% | 1.60% |
| 2003 | 0.38% | 2.30% |
| 2004 | 4.49% | 2.70% |
| 2005 | 2.87% | 3.40% |
| 2006 | 1.96% | 3.20% |
| 2007 | 10.21% | 2.90% |
| 2008 | 20.10% | 3.80% |
| 2009 | -11.12% | -0.40% |
| 2010 | 8.46% | 1.60% |
| 2011 | 16.04% | 3.20% |
| 2012 | 2.97% | 2.10% |
| 2013 | -9.10% | 1.50% |
| 2014 | 10.75% | 1.62% |
| 2015 | 1.28% | 0.10% |
| 2016 | 0.69% | 1.30% |
| 2017 | 2.80% | 2.10% |
| 2018 | -0.02% | 2.20% |
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Notes
- ↑ Government agencies also issue debt, some of which is backed by the full faith and credit of the government and some which is not
- ↑ In the google.docs spreadsheet tables,
Chart 1. graphically illustrates the year to year variation in 10-year treasury bond returns. Over the 1928 - 2016 period, the annual return ranged between -11% and 33%.
Chart 2 shows the annual relationship between inflation and bond returns.
Chart 3. graphically illustrates the year to year variation in inflation-adjusted annual returns. Measured in real terms, the bond return ranged between -17% and 26%. Note the much greater frequency of negative return years when bond returns are measured in real dollars.
Chart 4. shows the cumulative nominal and real return for the 10-year treasury bond (assuming an initial $100 investment) over the period. Note that during the deflationary years of the Great Depression, the bond's real return surpassed its nominal return. The long period of declining real returns (1945 - 1981) shows the corrosive power of increasing inflation and rising interest rates on nominal bonds. The late twentieth century disinflation and falling interest rates were catalysts for the marked improvement in the bond's real return.
Chart 5. shows a histogram of nominal and real returns.
See also
References
- ↑ TreasuryDirect. Why You Should Consider Treasury Securities for Your Portfolio
- ↑ TreasuryDirect. Treasury Securities & Programs.
- ↑ Treasury Direct. Treasury Bonds
- ↑ TreasuryDirect. (31CFR Part 346, Regulations Governing U.S. Individual Retirement Bonds)
- ↑ T-bond data source comes from Annual Returns on Stock, T.Bonds and T.Bills: 1928 - Current, Damodaran Online; inflation data comes from Consumer Price Index 1913 -, Minnesota Federal Reserve. Retrieved 2 December 2017
