A1.6.6. Government Bonds
Unlike corporations, government entities issue only debt securities, never equity. The most prominent and widely held government securities in the world are those issued by the United States Treasury, collectively referred to as Treasury securities or just Treasuries (not to be confused with treasury shares). These securities are backed by the full faith and credit of the United States government, and because the government can print money, the risk of default is considered to be effectively zero. If the government were to default on its Treasuries obligations, the consequences for financial markets in the United States and around the world would likely be very unpleasant indeed.
Treasuries offer what the market considers the risk-free rate of return, and the returns of other securities, particularly bonds, are measured against this rate. Like most bonds, however, fixed-rate Treasuries are subject to interest rate risk.
Interest paid on securities of the federal government is exempt from state and local income taxes.
Treasury bills, commonly known as T-bills, are short-term government securities. T-bills are available with 4-week, 13-week, 26-week, and 52-week terms. They are sold at a discount to par value and redeemed at maturity for par value; they do not pay periodic interest, and in this respect are like zero coupon bonds.
Treasury notes, or T-notes,