Re: Treasury Direct

From: snarasim@genre.com
Subject: Re: Treasury Direct
Date: Wed, 9 Dec 1998 09:36:03 -0500

Next Article (by Author): Re: Cash back MC/visa? snarasim@genre.com
Previous Article (by Author): Re: Can the brokerage vote my shares if I don't vote? jmorgan@ecentral.com
Top of Thread: Re: Treasury Direct Rich Carreiro
Articles sorted by: [Date] [Author] [Subject]

Rich,

Sorry to butt in like this. But there IS a slight (technical) difference
between Bills (on the one hand) and Notes and Bonds (n the other hand).
Bills are sold 'discounted'. i.e., you pay might pay (say) $995 for a Bill
that matures in 6 months and will pay you $1000 (the face value) on
maturity. The difference between the two is the interest earned ($5 in this
case). When you purchase Notes and Bonds, OTOH, you pay the FULL face value
(say $1000) and get 'coupons' that pay interestevery six months. Upon
maturity, you receive the $1000 back.

Seshadri Narasimhan

>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

- -




- -

Go to Jeff Salisbury LWGate Home Page.