Treasury Bonds

The governments of the world have two ways to raise capital to finance their nations: one is through taxation, and the second is through the issue of government bonds.

In the United States we use a bond called a Treasury Security. There are three types of Treasury Securities.

1. Treasury Bills
2. Treasury Notes
3. Treasury Bonds

Treasury Notes are short term Bonds with usually less than a year to maturity. They pay very little interest because they mature so quickly.

Treasury Notes are usually longer than a year to 10 years in duration. Interest rates vary on the notes, but they usually get a better interest rate the longer their duration.

Treasury Bonds duration are between 10 and 30 years. In normal economic times they pay the highest levels of interest.

As a quick note interest expenses on bonds can be expensive on a national government. In the case of a 30 year bond paying a 10 percent interest rate on a $1000 principle, the national government has to pay $100 per year on the bond to the investor. The total interest expense over the life of the bond would be $3000 plus $1000 repayment of the principle at year 30. You can see from the example that if a federal government issues large number of bonds, that interest expense can grow exponentially. According to fiscaldata.treasury.gov, The US will spend 776 Billion on Treasury security interest in 2025. This is a serious fiscal problem in the United States.

https://fiscaldata.treasury.gov/interest-expense-avg-interest-rates/