The prices and consequent yields of marketable treasury securities (Treasuries that may be traded on the secondary market) are decided by competitive bids at public auctions held by the Treasury. Auctions may include first-time issues of securities as well as security reopenings. Reopenings are reissues of securities offered previously at the same coupon and maturity date, but with a different purchase price.
Treasury Bills, or T-Bills, are of four-week, 13-week, 26-week, and 52-week maturities. The first three maturities are offered each week, while the 52-week bills are offered every four weeks. T-Bills are offered at a discount to face value and redeemable at par on maturity. One ETF that invests primarily in T-Bills is the SPDR Barclays 1-3 Month T-Bill ETF (BIL).
Treasury Notes, or T-Notes, are issued for two-year, three-year, five-year, seven-year, and ten-year maturities. Original issue auctions for the ten-year bond are held in February, May, August, and November, with reopenings scheduled in the remaining months. Auctions for the other notes are held monthly. T-Notes pay semi-annual interest and are redeemable at par. Popular ETFs investing in these debt instruments include IEF.
Treasury Bonds or T-Bonds are issued for maturities over ten years. Original issue auctions for the 30-year bond are held in February, May, August, and November, with reopenings scheduled in the remaining months. T-Bonds pay semi-annual interest and are redeemable at par. An ETF investing in Treasuries with a maturity exceeding 20 years is the iShares Barclays 20+ Year Treasury Bond Fund (TLT).
Treasury inflation-protected securities (or TIPS) are issued for five-, ten-, and 30-year maturities. Auctions for five-year TIPS are usually held mid-April, with reopenings scheduled mid-month in August and December. Auctions for ten-year TIPS are usually held in mid-January and mid-July, with reopenings scheduled mid-month in March, May, September, and November. Auctions for 30-year TIPS are usually held in mid-February, with reopenings scheduled mid-month in June and October. Popular ETFs investing in these debt instruments include TIP.
Floating rate notes (or FRNs) are issued for two-year maturities. Original-issue auctions are held in January, April, July, and October, with reopenings scheduled each month in the remaining months. On February 4, WisdomTree, an exchange-traded fund (or ETF) sponsor and asset manager, announced the launch of the WisdomTree Bloomberg Floating Rate Treasury Fund (USFR) on the NYSE Arca that plans to invest in Treasury FRNs.
To read about this week’s auctions, move on to Part 4 of this series.