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In the United States, you can invest in government bonds either by buying Treasury securities directly or by purchasing shares in a bond mutual fund or ETF that holds government debt. Direct ownership lets you choose a security and maturity; a fund gives you a managed portfolio whose value and holdings can change. This guide uses U.S. Treasury securities as its example. Other countries have different government-bond issuers and purchase channels.
Choose between owning a Treasury and owning fund shares
With an individual Treasury, you own a specific security with stated payment terms and a maturity date. If you hold it to maturity and the U.S. government meets its obligations, you receive its face value at maturity and any contractual interest.
With a bond fund, you own fund shares, not a claim on a particular bond’s maturity payment. The fund may buy and sell securities or replace those that mature, and its share price or net asset value fluctuates. A conventional bond fund does not promise that your shares will be worth a particular amount on a date you choose.
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What individual U.S. Treasury securities can you buy?
Treasury marketable securities are electronic book-entry instruments backed by the full faith and credit of the United States. The main types differ in maturity and payment structure:
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- Treasury bills: Short-term securities that mature in one year or less. TreasuryDirect lists terms from four weeks to 52 weeks. Bills are sold at face value or at a discount; the difference between the purchase price and face value is paid at maturity as interest. They do not make periodic interest payments.
- Treasury notes: Fixed-interest securities with terms of 2, 3, 5, 7, or 10 years. They pay interest every six months.
- Treasury bonds: Long-term securities with 20- or 30-year maturities. They pay interest every six months.
- TIPS and floating rate notes (FRNs): Treasury securities with inflation-adjustment and floating-rate features, respectively. Review their specific terms before buying; they do not work exactly like fixed-rate notes or bonds.
A note or bond’s coupon rate is not necessarily the yield you earn if you buy it for more or less than face value. In general, when a bond’s yield to maturity is above its coupon rate, its price is below face value; when the yield is below the coupon, its price is above face value.
How to buy individual Treasury securities
Buy a new issue at auction
You can buy newly issued marketable Treasuries through a TreasuryDirect account or through a bank, broker, or dealer. TreasuryDirect accepts noncompetitive bids: you agree to accept the rate or yield established at auction. Through a financial intermediary, an investor may also be able to place a competitive bid, specifying the return they will accept; the bid may be filled in full, in part, or not at all.
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TreasuryDirect states a $100 minimum purchase, with purchases in $100 increments. Its current guidance also says a newly purchased marketable security generally must remain in TreasuryDirect for at least 45 calendar days before it can be transferred or sold. The page notes an exception for purchases funded by reinvestment of a maturing security. Check TreasuryDirect’s current rules before placing an order because service requirements can change.
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For reopened or newly issued notes, bonds, TIPS, and FRNs, the purchase price may include accrued interest. You pay that amount as part of the price and receive it back with the next regular interest payment. Treasury bills do not pay periodic interest and are handled differently.
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Buy an existing Treasury in the secondary market
Existing marketable Treasuries can be bought or sold through a financial institution or broker. If you sell before maturity, the market price may be above or below face value. It depends in part on prevailing rates, the security’s coupon and remaining maturity, its price, and transaction terms. A sale at a lower price can mean a loss even though the security is a U.S. Treasury.
How government bond funds work
A bond fund is an investment company that may be structured as a mutual fund, ETF, closed-end fund, or unit investment trust. Some funds focus on government debt; others combine government securities with corporate, mortgage-backed, municipal, or other bonds. The word “government” in a fund’s name alone does not establish its exact holdings, credit quality, maturity range, duration, or use of derivatives.
Before investing, review the fund’s prospectus and latest shareholder report, and check its current portfolio and expense information. Consider these features:
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1Scan for outdated or missing drivers - takes under a minute2Clear out junk files and repair common Windows errors3Fix the driver behind crashes, sound loss and screen glitches- Mandate and holdings: Verify whether the fund owns U.S. Treasuries specifically or broader government-related securities.
- Duration and maturity profile: These help indicate the portfolio’s sensitivity to changing interest rates and the general timing of its holdings.
- Fees and trading costs: Compare the expense ratio along with any brokerage charges, bid-ask spreads, transaction fees, minimums, and account terms.
- Distributions and strategy: Check how the fund distributes income and whether its manager maintains a target duration or maturity range.
A fund can make it easier to hold a diversified bond portfolio in one investment. In exchange, you rely on the fund’s stated strategy and accept that its share value changes; you do not set the maturity date of the fund shares.
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Can you lose money in a government bond investment?
Yes. A Treasury held to maturity can return its face value, assuming the U.S. government meets its obligations, but its market price can fall before then. Selling at that lower price turns the interim decline into a realized loss. Inflation can also reduce the purchasing power of the money returned.
A bond fund can also lose value, including a fund that invests only in government bonds. The U.S. Securities and Exchange Commission’s Office of Investor Education and Advocacy states: “A fundamental principle of bond investing is that market interest rates and bond prices generally move in opposite directions.” When rates rise, an older fixed-rate bond may become less attractive than newly issued bonds, so its price may fall. Longer maturities generally have greater interest-rate sensitivity than otherwise similar shorter maturities; for funds, longer duration generally means larger price moves when rates change.
The SEC’s general bond-risk categories include interest-rate, inflation, liquidity, credit, and call risk. Credit risk on U.S. Treasury obligations is generally viewed as minimal compared with many other issuers, but that does not eliminate price risk. Funds holding mortgage securities or other government-related debt may have risks that differ from a fund holding only Treasuries. Do not treat either a Treasury sold before maturity or a government bond fund as “risk-free.”
Which route fits your needs?
| Consideration | Individual Treasury securities | Government bond fund |
|---|---|---|
| Maturity and cash flows | Specific security has stated payment terms and a maturity date. | Fund shares do not mature when the fund’s underlying bonds mature. |
| Control | You choose securities and can select maturities to align with a goal. | The manager follows the fund’s strategy, which may maintain a target duration or maturity range. |
| Diversification and management | You select and manage each holding. | One investment can provide a managed portfolio of bonds. |
| Access to money | You may sell before maturity, but the market price can be above or below face value. | Shares remain market-priced investments and can decline in value. |
| Costs and terms | Check purchase minimums, account terms, and any intermediary charges or spreads. | Check the expense ratio, brokerage charges, bid-ask spreads, transaction fees, minimums, and account terms. |
| Exposure | You select the specific Treasury security. | Confirm current holdings; a fund may hold Treasuries or a broader mix of debt. |
Individual securities may suit an investor who values defined payment terms and a chosen maturity and is comfortable managing holdings. A fund may suit someone who prefers a managed portfolio and does not need a specific maturity payment date. The better fit depends on the goal, time horizon, cash-flow needs, desired diversification, and tolerance for interim price changes. Compare current offering documents rather than relying on a fund name or a bond’s coupon alone.
Quick Recap
Sources and current details
- U.S. TreasuryDirect: Marketable securities — security types, terms, and interest features.
- U.S. TreasuryDirect: Buying a marketable security — auction access, purchase amounts, transfer and sale rules, and accrued interest.
- U.S. Securities and Exchange Commission, Investor Bulletin: Interest Rate Risk—When Interest Rates Go Up, Prices of Fixed-Rate Bonds Fall (June 26, 2013) — general bond interest-rate risks.
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