Re: Treasury Direct

From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: Treasury Direct
Date: Tue, 8 Dec 1998 18:42:53 -0500

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>I just received information on the new Treasury Direct program.  Could someone
>give a quick explanation of the benefits of T-Bills/Notes/Bonds versus CDs?  I
>live in IL, so our state tax is only 3%.

Bills, notes, and bonds are direct obligations of the US govt.  As such,
interest income from them are exempt from state and local income tax,
and their value is exempt from state and local intangibles taxes.

T-Bills are short-term debt instruments issued in 13, 26, and 52 week
maturities.  They pay no interest.  Instead, they are issued at a discount
and are redeemed at par.  The difference between issue price and redemption
price is your interest.  You are considered to receive the income when the
bill matures or when you sell it.

T-Notes/T-Bonds are your standard interest-bearing bonds.  The term "note"
tends to be applied to intermediate maturity instruments and "bond" to long
term instruments (like the famed 30-year bond), but aside from that there are
no differences between them.  They pay half the stated interest payment twice
a year, like most bonds of all sorts do.

There is absolutely no default risk since they are direct obligations
of the US.  There is still the standard inflation and interest-rate risk
of all fixed-income instruments.

Unlike most CDs, Treasury securities are negotiable and there are very
liquid markets for them.

Rich Carreiro
rlcarr@animato.pn.com
P5-100/RedHat Linux 4.2

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