Treasury bond

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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

See United States Treasury security.

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]

10 year treasury bond[note 2]
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%

(View Google Spreadsheet in browser, then File --> Download as to download the file.)


Notes

  1. Government agencies also issue debt, some of which is backed by the full faith and credit of the government and some which is not
  2. In the google.docs spreadsheet tables,
    Chart 1. graphically illustrates the year to year variation in 10-year treasury bond returns. Over the 1928 -2012 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

  1. TreasuryDirect. Why You Should Consider Treasury Securities for Your Portfolio
  2. TreasuryDirect. Treasury Securities & Programs.
  3. Treasury Direct. Treasury Bonds
  4. TreasuryDirect. (31CFR Part 346, Regulations Governing U.S. Individual Retirement Bonds)
  5. 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 1 April 2012