U.S. Treasury bonds

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Treasury bonds (T-bonds) are 30-year debt securities issued regularly by the federal government that pay a fixed interest rate (coupon) every six months until maturity and are considered among the world's safest securities. Because they are used as collateral by large financial institutions, Treasury bonds have become harder to trade and borrow since the beginning of the 2007-2009 credit crisis.

The U.S. Treasury auctions off Treasury bonds four times per year in February, May, August and November, usually in minimum denominations of $1,000, although investors can purchase a minimum of $100-worth in multiples of $100 up to a maximum of $5 million through Treasury Direct. They pay interest every six months until maturity, when investors are paid their face (par) value, or they can sell before the bonds mature. The interest income is subject to federal income tax but exempt from state and local income taxes. T-bonds maturing in May 2038 with a coupon of 4.5% were recently trading at a price of 103.26 and yield of 4.27.

Locking up quality

In October of 2008, the U.S. Treasury decided to release an extra $20 billion in Treasury bonds to unclog bottlenecks in the troubled short-term interbank lending and corporate debt markets, where they are borrowed for use as collateral. But as credit markets froze and T-bond prices went up, banks and other institutions became increasingly unwilling to lend T-bonds, while borrowers took to refusing to give them back, prompting Treasury to boost supply.