There are many different types of bonds out there, and keeping track of the all of the types can get confusing. If you are trying to familiarize yourself with the bonds, you should look at each major type of bond individually and study them thoroughly. One type of bond you will see when studying the different types of bonds is called a government bond. Government bonds also have different types, or categories within the overall term of government bond. A government bond is a bond that is issued by a national government with a promise to periodic interest payments and to repay the face value on the maturity date. There are three different types of categories of government bonds, and they are called bills, notes and bonds. Looking at each category of government bond will help you understand government bonds as a whole.
The categories of government bonds have similarities in the fact that they are all issued by the United States to fund its debt. All of them are also backed by the credit of the United States government. Although these bonds have some similarities, they have two key differences between all three of them, and that is their maturity dates and the way they pay interest.
The first category of the three types of securities is called a Treasury bill. These are short-term bids that will mature within one year or less from the time that they are issued. These bills are sold with maturity periods of four, 13, 26, and 52 weeks. This also amounts to one, three, six and 12 months. The way that this type of bill is auctioned depends on their time of maturity. The one, three and six month bills are auctioned once a week, and the 12-month bills are auctioned every four weeks. These bills have lower yields than those available on the other securities because they are short-term. When either security is sold at auction, they can be bought for more or less than the face value. This will depend on the demand of any of these securities. When the demand is high, bidders will pay more than face value in comparison to if the demand was low.
The next type of security is the treasury note. These have maturities that have very long bonds. These notes are issued with maturities of one, three, five, seven and 10 years. On the other hand, a treasury bond, which is the other type of security, is referred to as the long bond. This is because they offer maturities of 20 and 30 years. The only difference between these two securities is their length until maturity. Typically, the longer the maturity date is, the higher the yield will be.
The bills, notes and bonds all affect the economy. They do this in two ways. They affect the interest rates. They are a safe investment, and they offer the lowest yield. If investors are willing to take a bit more of a risk, they can receive a bit more return. If the Treasury yields increase, then the interest that is paid on the riskier investment must increase as well. The second way that these securities affect the economy is because they fund the U.S. debt. They will pay for expenses that are not covered by the incoming tax revenue.
Understanding the different types of bonds can help you understand all of the different bonds as a whole. Being educated about the different categories of government bonds will help you understand them as a whole, and you will be able to see how important they are to the economy.