Government debt, also known as Treasury securities or simply “Treasuries“, are the debt financing instruments of the United States Federal government issued by the United States Department of the Treasury through the Bureau of the Public Debt. Simply described, Treasuries are IOUs for money the government borrows from investors in order to pay it’s bills.
According to The Public Debt Bureau’s website:
Our job is to borrow the money needed to operate the federal government and to account for the resulting debt. In a nutshell, we borrow by selling Treasury bills, notes, and bonds, as well as U.S. Savings Bonds; we pay interest to investors; and, when the time comes to pay back the loans, we redeem investors’ securities. Every time we borrow or pay back money, it affects the outstanding debt of the United States.
Because Treasuries are backed by the full faith of the Federal government, they’re are considered one of the safest investments available. The four main types of marketable treasury securities are – Treasury bills, Treasury notes, Treasury bonds, and Treasury Inflation Protected Securities (TIPS).
All of the marketable Treasury securities are very liquid and are heavily traded on the secondary market. They can be bought and sold by anyone, but most ordinary individual investors like myself prefer to invest in government debt through low-cost bond mutual funds, such as the one’s offered by The Vanguard Group (VFISX, VFITX, VUSTX, and VIPSX).
Here’s a short video that describes the basics of Government debt and the highlights differences between the marketable securities (sans TIPS).
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