US Treasury securities

Definition

US Treasury securities are debt instruments issued by the U.S. Department of the Treasury to finance government spending. They are considered one of the safest investments as they are backed by the full faith and credit of the U.S. government.

5 Must Know Facts For Your Next Test

1. US Treasury securities include Treasury bills, notes, and bonds with varying maturities.
2. Interest earned on US Treasury securities is exempt from state and local taxes but subject to federal income tax.
3. The risk-free rate often used in calculating the Weighted Average Cost of Capital (WACC) is usually derived from yields on US Treasury securities.
4. US Treasury securities have an inverse relationship with interest rates; when interest rates rise, their prices fall.
5. They play a significant role in monetary policy as they can be bought or sold by the Federal Reserve to influence money supply.

Review Questions

• What types of debt instruments are included under US Treasury securities?
• How does the risk-free rate relate to US Treasury securities in WACC calculations?
• Why are US Treasury securities considered low-risk investments?

Related terms

Treasury Bills (T-Bills): Short-term debt instruments that mature in one year or less.

Treasury Notes (T-Notes): Medium-term debt instruments that mature between two and ten years.

Treasury Bonds (T-Bonds): Long-term debt instruments that typically mature in thirty years.