U.S. Treasury Securities (UST)

U.S. Treasury Securities (also known as Treasuries or USTs) are debt instruments issued by the U.S. Department of the Treasury to fund the government's operations. Think of it like this: when you buy a Treasury, you are lending money to the U.S. government. In return for your loan, the government promises to pay you back in full at a future date, along with periodic interest payments (for most types). These securities are backed by the “full faith and credit” of the United States, meaning the government makes an unconditional guarantee to repay its debt. This makes them widely considered the safest investment on the planet, a foundational pillar of the global financial system. Their yields serve as a critical benchmark for interest rates on everything from mortgages to corporate bonds. For investors, they represent the ultimate safe haven, a place to preserve capital when markets get choppy.

This isn't just a catchy phrase; it's the bedrock of global finance. The “full faith and credit” promise is the U.S. government's solemn vow to use its vast resources, including its power to tax, to pay back its lenders. Because the U.S. has never defaulted on its debt, investors worldwide treat Treasuries as a proxy for a risk-free asset. This is, of course, referring to default risk—the risk that the borrower won't pay you back. While other risks exist (more on that below), the near-zero chance of default makes USTs a core holding for central banks, financial institutions, and everyday investors who prioritize safety above all else. When fear grips the market, a “flight to safety” occurs, where money pours out of riskier assets like stocks and into the perceived safety of Treasuries.

The Treasury doesn't just offer one type of loan. It issues several different securities, each with a different maturity, to appeal to a wide range of investors. The main three are:

These are the sprinters of the Treasury world.

• Maturity: Short-term, with maturities of one year or less (common terms are 4, 8, 13, 17, 26, and 52 weeks).
• How they pay: Treasury Bills (T-Bills) are unique because they don't pay interest in the traditional sense. Instead, they are sold at a discount to their face value (par value). For example, you might buy a $1,000 T-Bill for $990. When it matures a year later, the government pays you the full $1,000. Your return is the $10 difference.

These are the workhorses of the Treasury market and the most commonly traded.

• Maturity: Intermediate-term, with maturities of two, three, five, seven, and ten years.
• How they pay: Treasury Notes (T-Notes) pay interest every six months at a fixed rate. This regular interest payment is called a coupon payment. At maturity, you get the final coupon payment plus your original principal back. The yield on the 10-year T-Note is one of the most closely watched financial metrics in the world.

These are the marathon runners, designed for the long haul.

• Maturity: Long-term, with maturities of 20 or 30 years.
• How they pay: Like T-Notes, Treasury Bonds (T-Bonds) pay a coupon every six months and return the principal at maturity. Because of their long duration, their prices are much more sensitive to changes in interest rates.

The Treasury also offers specialized securities like TIPS (Treasury Inflation-Protected Securities), whose principal value adjusts with inflation to protect your purchasing power, and Floating Rate Notes (FRNs), whose interest payments rise and fall with benchmark interest rates.

While value investors are famous for hunting for bargain stocks, Treasuries play a crucial role in a sound investment strategy.

During a recession or a stock market crash, even the best companies can see their stock prices plummet. Treasuries provide stability. A value investor can use USTs as “dry powder”—a safe place to park cash that still earns a return. When market panic creates incredible bargains in the stock market, the value investor can sell their stable Treasuries and buy stocks on the cheap. This disciplined approach is a cornerstone of preserving and growing capital over the long term.

How do you know if a stock is cheap? You need something to compare it to. The yield on a U.S. Treasury security is used as the risk-free rate in many valuation models, such as the Discounted Cash Flow (DCF) analysis. It represents the minimum return you can expect from an investment with virtually no risk of default. Any other investment, like a stock, must offer a meaningfully higher expected return (a risk premium) to justify taking on its additional risks. As the legendary investor Warren Buffett has often noted, interest rates act like gravity on asset valuations. When the risk-free rate is high, the required return from all other assets must also be high, which puts downward pressure on their prices.

While free of default risk, Treasuries are not entirely risk-free. A smart investor understands the other factors at play.

• Interest Rate Risk: This is the big one. If you buy a 10-year bond with a 3% coupon and market interest rates later rise to 5%, your bond is suddenly less attractive. Why would anyone buy your 3% bond when they can get a new one paying 5%? To sell your bond, you'd have to offer it at a discount. This inverse relationship—when rates go up, existing bond prices go down—is a fundamental concept. The longer the bond's maturity, the greater the interest rate risk.
• Inflation Risk: This is the risk that the return on your investment won't keep up with the rising cost of living. If your T-Note yields 2% but inflation is running at 3%, you are actually losing 1% of your purchasing power each year.
• Reinvestment Risk: This is the risk that when your bond matures, you'll have to reinvest your principal at a lower interest rate than you were previously earning. This is a primary concern for investors who rely on their bond portfolio for income.