ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Investing for Income: How to Buy Treasury Bonds

Updated on October 29, 2011

Treasury Bonds have long been considered a safe and conservative investment option when investing for income. Even with the recent downgrade by Standard & Poors, U.S. Treasury Bonds are still considered very safe. In fact, after the downgrade, money continued to pour into Treasuries as the stock market tanked.

Once purchased, Treasury Bonds provide semi-annual interest payments for the life of the bond term, typically ten to thirty years. If held until the end of the term, the full principal is returned to the investor. With guaranteed income, full return of principal, and government backing, it's easy to see why many investors prefer Treasury Bonds over stocks, especially in these turbulent times. Unfortunately, many people don't understand how bonds work or where to purchase them. This article will answer all of these questions for you so that you too can invest for income by purchasing Treasury Bonds.

What is a Bond?

A bond is basically a loan. In the case of Treasury Bonds, the United States Government sells bonds to raise money. So basically, the bond purchaser is providing a loan to the government and is paid interest for the use of the money. Treasury Bonds are sold in $1000 increments and the interest paid depends on the length of the bond term and the demand for the bond. If there's high demand for bonds at the date of issuance, the interest rate will be lower. On the other hand, if the demand is low, the rate will be pushed higher to attract investors. Interest rates will be higher for longer bond terms and lower for shorter terms.

Understanding Bonds

When you start looking at bonds, you'll hear several terms that might be unfamiliar to you but that you'll need to understand.

  • Coupon: This just means the interest rate that the bond pays. Most long term Treasury Bonds have two coupon or interest payments per year.
  • Yield: The rate of return on a bond. It's calculated by dividing the coupon by the price.
  • Maturity Date: The date at which the bond will be repaid by the issuer. This is when you'll get your principal back in full.
  • Price: If you purchase a bond at issuance, the price is $1000, which is stated as 100. Bonds that are purchased or sold after the original date of issuance but before the maturity date can have a higher or lower price due to changes in the prevailing interest rates. For example, if you purchase a bond that was issued in the 1980's when interest rates were above 10%, you'll pay a premium for the bond. This price would be quoted as something like 120, meaning that the price is $1200 for a bond with a face value of $1000.
  • Secondary Market: Bonds that are bought and sold after the original issue date are said to be on the secondary market.

Bonds sold on the secondary market fluctuate in price depending on the interest rates.  If interest rates rise, bond prices fall.  If interest rates fall, bond prices increase.

Where to Purchase Treasury Bonds

For someone just starting out purchasing Treasury Bonds or for a smaller investor, the best way to purchase individual bonds is through Treasury Direct. There is no commission payment or fee for purchasing bonds through Treasury Direct. Simply go to to open an account and get started. You can sign up for an email alert that will let you know about upcoming Bond auctions. Prior to the auction date, you simply log on to your account and specify which Bond you'd like to purchase and in which amount. The funds for your purchase are withdrawn from your linked bank account on the day of the auction. Six months later, you'll receive an interest payment. In another six months you'll receive a second interest payment.  These semi-annual interest payments will continue for the life of the bond.

Another way to purchase Treasury Bonds is through a brokerage account. When purchasing this way, you'll pay a small fee that's built into the price of the bond. You'll also probably be required to purchase in larger quantities than is required through Treasury Direct. The benefit of buying bonds through a brokerage is that if you want to sell the bond before maturity, it's easy to do that through the brokerage, which is an organized secondary market. When you buy through Treasury Direct and want to sell, you'll need to transfer your bond to a brokerage first before selling, a minor inconvenience.

If you purchase enough bonds and you have interest payments coming in every month, you could conceivably use those payments to replace your income from paid employment. And you can accomplish that without risking the loss of your principal, as long as you hold the bond to maturity. If you decide to sell your bonds prior to maturity, you'll expose yourself to more risk since the price of the bond could decline if interest rates increase. So consider carefully before investing.


    0 of 8192 characters used
    Post Comment
    • SD Dickens profile imageAUTHOR

      SD Dickens 

      7 years ago

      Thanks KeithTax! I think you're right, I was the same way regarding individual bonds before learning more and buying some. Unfortunately, the interest rate is very low right now making them less attractive.

    • KeithTax profile image

      Keith Schroeder 

      7 years ago from Wisconsin

      This is a well written hub on how bonds work and buying Treasurys. More people need to consider bonds in their portfolio. The reason people avoid bonds (in my opinion) is lack of understanding.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)