======Treasuries======
Treasuries (also known as 'Treasury securities') are [[debt securities]] issued by the [[U.S. Department of the Treasury]] to finance government spending. Think of it this way: when you buy a Treasury, you are essentially lending money to the U.S. government. In return, the government promises to pay you back your initial investment (the [[principal]]) at a future date, often with periodic interest payments along the way. What makes Treasuries the superstar of the bond world is their safety. They are backed by the '[[full faith and credit]]' of the United States, which means the government guarantees repayment with its full taxing power. This makes them one of the safest investments on the planet. While they are a U.S. product, their stability and liquidity make them a cornerstone of the global financial system, held by individuals, corporations, and central banks worldwide. For investors, they are not just a safe place to park cash; they are a fundamental benchmark for pricing risk across all other assets.
===== The Treasury Family =====
The U.S. Treasury offers a menu of options to suit different investment horizons and goals. Understanding the key types is crucial for building a resilient portfolio.
==== Treasury Bills (T-Bills) ====
These are the sprinters of the Treasury world.
  * **Maturity:** Very short-term, with [[maturity]] dates ranging from just a few days up to 52 weeks.
  * **How they work:** T-Bills are unique because they don't pay regular interest. Instead, they are sold at a discount to their [[face value]]. Your profit is the difference between what you paid and the face value you receive when the bill matures. For example, you might buy a $1,000 T-Bill for $990 and receive the full $1,000 at maturity, pocketing a $10 gain.
==== Treasury Notes (T-Notes) ====
These are the reliable workhorses of the Treasury market.
  * **Maturity:** Medium-term, issued with maturities of 2, 3, 5, 7, and 10 years.
  * **How they work:** T-Notes pay interest every six months at a fixed rate (this is called a [[coupon payment]]). When the note matures, the investor gets the full face value back. The 10-year T-Note is one of the most widely watched financial instruments in the world.
==== Treasury Bonds (T-Bonds) ====
These are the marathon runners, designed for the long haul.
  * **Maturity:** Long-term, with maturities of 20 and 30 years.
  * **How they work:** Like T-Notes, they pay interest twice a year and return the principal at maturity. T-Bonds are for investors who want to lock in a specific interest rate for a very long period.
==== Treasury Inflation-Protected Securities (TIPS) ====
These are the inflation fighters of the family.
  * **Maturity:** Issued as notes and bonds with 5, 10, and 30-year maturities.
  * **How they work:** [[Treasury Inflation-Protected Securities (TIPS)]] are ingeniously designed to protect your investment from [[inflation]]. The principal value of a TIPS bond is adjusted up or down based on changes in the [[Consumer Price Index (CPI)]], a common measure of inflation. The fixed interest rate is then paid on this adjusted principal. This ensures that the return on your investment keeps pace with inflation, protecting your purchasing power.
===== Why Should a Value Investor Care? =====
For a [[value investing]] practitioner, Treasuries are more than just a boring, safe asset. They are a fundamental tool and an essential source of information.
==== The Benchmark for "Risk-Free" ====
The yield on U.S. Treasuries is considered the global [[risk-free rate of return]]. Why? Because the chance of the U.S. government defaulting on its debt is practically zero. This risk-free rate is the foundation upon which all other investment decisions are built. In valuation models like the [[Discounted Cash Flow (DCF)]] analysis, we use this rate as a baseline. Any other investment, like a [[stock]], must promise a higher potential return to justify its additional risk. This extra juice is the [[risk premium]]. If a company's stock isn't likely to beat the return you can get from a Treasury, a value investor would ask, "Why bother taking the risk?"
==== A Safe Haven and Dry Powder ====
During a market panic or a [[recession]], investors often engage in a "flight to quality," selling riskier assets and piling into the safety of Treasuries. For the value investor, this is a powerful strategy.
  - **Capital Preservation:** Holding Treasuries can shield a portion of your portfolio from stock market crashes.
  - **Dry Powder:** More importantly, it provides you with "dry powder"—capital that is safe, liquid, and ready to deploy. When fear grips the market and wonderful businesses go on sale, you have the cash ready to snap up bargains. As Warren Buffett advises, it pays to be "greedy when others are fearful."
==== A Barometer for the Economy ====
The [[yield curve]]—a graph plotting the yields of Treasuries across different maturities—is a powerful economic indicator. Normally, longer-term bonds have higher yields. But when short-term yields creep above long-term yields, the curve "inverts." An [[inverted yield curve]] has historically been a remarkably accurate predictor of an upcoming recession. For a value investor, this is a crucial signal to proceed with caution and be extra diligent in your analysis.
===== Risks and Considerations =====
While they are the "safest" investment, Treasuries are not entirely without risk.
=== Interest Rate Risk ===
This is the big one. If general [[interest rates]] in the economy rise, newly issued bonds will offer more attractive yields. This makes your older, lower-yielding bond less valuable on the open market if you try to sell it before maturity. This effect, known as [[interest rate risk]], is much more pronounced for long-term bonds like the 30-year T-Bond.
=== Inflation Risk ===
For standard T-Notes and T-Bonds, [[inflation risk]] can silently eat away at your returns. If your bond pays a fixed 3% interest but inflation is running at 4%, your real return is negative, meaning you're losing purchasing power. This is precisely the problem that TIPS are designed to solve.
=== Reinvestment Risk ===
Imagine your 10-year T-Note paying 4% matures today. You get your principal back, but now the prevailing interest rates for new 10-year notes are only 2%. You now face [[reinvestment risk]]: the challenge of reinvesting your money at a much lower rate of return, which could significantly impact your future income.