Government securities

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Government securities are securities issued by a country with very little risk of default in an effort raise funds necessary to pay for the country's expenses.

U.S. government securities include Treasury bills, notes, and bonds. Treasury bills are short-term obligations (mostly with 13-, 26-, and 52-week maturities) sold by the federal government through competitive bidding.

Bills are generally issued in $10,000 minimum denominations, then in $5,000 increments above $10,000. Treasury notes may run up to seven years, while Treasury bonds typically have maturities ranging from five years to 30 years. Interest income on debt obligations of the federal government is typically exempt from state and local income taxes, but is subject to federal taxes. The relatively low credit risk of government securities, plus their favorable tax treatment, causes them to generally provide a lower pretax yield than that of corporate fixed-income securities with similar maturities.[1]

U.S. Treasury bond and note futures can be used to control risk and enhance the returns of non-U.S. government securities.

Government bills, notes and bonds are considered a safe financial product because they have a guaranteed rate of return, based on faith in future U.S. tax revenues. The government has been partially funding operations via Treasury securities for decades. This borrowing adds to the national debt.[2]

CME Group has some of the most highly traded futures products in the world, listing CME Group interest rate products that focus on the entire U.S. dollar-denominated yield curve. Challengers to Chicago's foothold on the Treasury futures market, such as Eurex have so far been unable to win over significant market share in this area.

The U.S. Futures Exchange will launch fixed income products in the 2008, with futures based on four indexes licensed from Lehman Brothers.

References

  1. Glossary: U.S. Government Securities. BusinessWeek.
  2. The Biggest Holders of US Government Debt. CNBC.