Treasury bonds: are they a good investment for retirement?


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Stock market volatility is disconcerting to any investor, but retirees have a particular worry: a sharp drop in their portfolio can be devastating, as they don’t have time to wait for the market to recover. Plus, they take money out to live on in retirement, and selling stocks when the market is down is the exact opposite of the “buy low, sell high” investment truism.

Some investors, regardless of age, have a great fear of losing money in the market. They simply can’t stand to see the value of their portfolio diminish. They are looking for very low risk investments.

Treasury bonds can be a good investment for either of these types of investors and can be a solid choice for part of your retirement plan, regardless of your age. Here’s what you need to know to know if they’re right for you.

How does a treasury bond work?

Treasury bills, sometimes called T-bonds, are debt securities issued by the United States government. When you buy a treasury bill, you are essentially lending money to the government. In return, the government agrees to pay you interest twice a year for the duration of the bond. When the bond matures, the government will repay you the money you lent it.

When you buy a Treasury bond, you will know how long you will need to hold the bond – Treasury bonds are issued for 20 or 30 years – and what the interest rate is.

Treasury bills are offered in multiples of $100. This is the face value of the bond. If you wanted to invest $1,000 in Treasury bonds, you would buy 10 bonds. The price of bonds is determined at auction and may be greater than, equal to, or less than face value, sometimes referred to as “par.”

The interest rate is also determined at the auction since it depends on the price of the bond. Each bond has a coupon rate, which is the interest rate it is expected to pay. In some circumstances, investors will drive up the interest rate because they want that particular bond. In this case, the bond would be sold at less than par, which would result in a higher return for the investor than the coupon rate would indicate. The interest rate the bond actually pays is called the “yield to maturity”.

Here is an example. Suppose a 30-year bond has a coupon rate of 4.25%. Investors think this bond is actually worth 4.35% — that’s its yield to maturity. For the investor to earn 4.35% on the bond, he must buy it at less than face value.

So a $100 treasury bill would be sold for $98.33 instead of $100. The investor earns $4.25 in interest each year, payable in two installments of $2.12 each, every six months.

In 30 years, the bond matures and the investor gets back $100, not the $98.33 he paid. The difference between the price of $98.33 and the face value of $100 is what represents the additional 0.10% of the interest rate.

Conversely, if investors believe that this bond should only pay 3.99% YTM, they will pay more than par when buying the bond. Instead of $100, the investor would pay $104.51. The investor will still receive $4.25 in interest each year, or two installments of $2.12 each, every six months. In 30 years, the bond matures and the investor gets back $100, not the $104.51 he paid. The difference represents the 0.26% reduction in the interest rate.

How often are treasury bills issued?

Treasury bills are initially issued four times a year – in February, May, August and November. Scheduled reopenings, when additional quantities of previously issued bonds are sold, occur in January, March, April, June, July, September, October and December. Reopenings have the same interest rate and maturity date as the original issue, but can – and usually have – a different purchase price.

You can also make a competitive offer for treasury bills, specifying the interest rate you wish to obtain. Your offer may or may not be accepted or may be accepted for only a portion of the number of bonds you specify. To place a competitive bid, you must do so with a bank or broker.

What are treasury bills now yielding?

Interest rates on treasury bills rise and fall with the federal funds rate – although they don’t exactly work in tandem. The 30-year Treasury bonds issued on June 15, 2022 have a coupon rate of 2.87%. The high yield, or auction rate, is 3.18%, so these bonds will sell at a discount to par. The 20-year Treasury notes issued on May 31, 2022 have a coupon rate of 2.50% and a high yield of 3.29%, so these bonds will also sell at a discount to par.

Can you make money on treasury bills?

Treasury bills pay a fixed rate of interest. The interest rate is fixed when the bonds are issued, it is expressed as an annual rate and paid in two half-yearly installments. So if you buy a 30-year Treasury bond with an interest rate of 5.00%, you will receive 60 installments of $2.50 each, for a total of $150, over the life of the bond. obligation.

If you bought the bond at a discount, that is, for less than the face value of $100, you will get back $100 when the bond matures. So the difference between what you paid and face value is another way bond investors make money when bonds are bought at a discount.

How can I buy treasury bills?

You can buy Treasury bonds online at, or from a bank or licensed broker. If you purchase bonds through, you agree to accept the interest rate set at the auction. You cannot enter a competitive offer on the website.

Can I redeem a treasury bond earlier?

20 or 30 years is a long time to hold a single investment. For this reason, many investors seek to sell their treasury bills before they mature, so there is an active secondary market for treasuries. Like other investments, they’re only worth what someone is willing to pay for them, so you’ll need to consider whether selling is a good idea when you’re considering it. Just like buying bonds, you can sell them through a bank, broker, or on

Are treasury bonds a good investment?

Because they are backed by the full confidence and credit of the United States government, treasury bonds are one of the safest investments you can buy. Because there is so little risk of you losing money, they usually don’t pay a very high return.

So if you’re young, not afraid of risk, and investing for your retirement in 40 or 50 years, Treasury bonds should probably only be a very small part of your portfolio, if at all. . But if you’re looking ahead to retirement or can’t sleep at night because you’re worried about losing money in the stock market, treasury bonds could be a great choice for you. For most investors, treasury bonds can form part of their portfolio, but the amount will depend on your particular situation.

Information is accurate as of June 13, 2022.

About the Author

Karen Doyle is a personal finance writer with over 20 years of experience writing about investing, money management, and financial planning. His work has appeared on numerous news and finance websites, including GOBankingRates, Yahoo! Finance, MSN, USA Today, CNBC,, and more.


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