Introduction

This document describes marketable and nonmarketable securities that the Treasury issues currently and unmatured securities that we issued in the past, but have withdrawn from current sale. The information covers the statutory authority, governing regulations, and the features of each type of security.

The full faith and credit of the United States guarantees the timely payment of principal and interest on Treasury securities. The Treasury sells marketable bills, fixed-principal notes and bonds, and inflation-indexed notes and bonds in regularly scheduled auctions. Bills, fixed-principal notes and bonds, and inflation-indexed notes and bonds are freely transferable. They are traded in the highly competitive global capital markets. They are available in book-entry form in the commercial book-entry system through a financial intermediary. They also may be held in book-entry form in TreasuryDirect.

Treasury securities generally are not callable prior to maturity. The exception is that prior to 1985, the Treasury issued marketable, callable long-term bonds, and many of them remain outstanding. The Treasury can redeem those callable bonds on their first call date, which is five years prior to the maturity date, or on any semiannual interest payment date thereafter. The Treasury must provide four months' notice before calling a bond. In fact, we have called a number of bonds during their call periods.

Until late 1998, the method for selling marketable Treasury securities generally had been multiple-price auctions. In a multiple-price auction, we accepted the yields (discount rates in the case of Treasury bills) that were bid competitively from the lowest to the highest yield required to sell the amount offered to the public. Competitive bidders whose tenders were accepted paid the price equivalent to the yield (or discount rate) that they bid. Noncompetitive bidders paid the weighted-average price of accepted competitive bids.

We started to conduct single-price auctions on an experimental basis for monthly sales of 2- and 5-year notes in September 1992 and extended the use of single-price auctions to all marketable Treasury securities in November 1998. All auctions of inflation-indexed notes and bonds have been on a single-price basis since we began selling inflation-indexed securities in January 1997. As with multiple-price auctions, single-price auctions are conducted in terms of yield (bank discount rate in the case of Treasury bills). Bids are accepted from the lowest yield (or discount rate) to the highest required to sell the amount offered. In contrast to multiple-price auctions, all awards are at the highest yield (or discount rate) of accepted bids.

We have found that single-price auctions have advantages for the Treasury. First, they tend to distribute auction awards to a greater number of bidders than under the multiple-price auction. Second, auction participants may bid more aggressively in single-price auctions. Successful bidders are able to avoid the so-called "winner's curse," the risk that a bidder will pay more than others buying securities in an auction. We estimate that more aggressive bidding has lowered Treasury borrowing costs somewhat. You can obtain the Treasury studies of single-price auctions on http://www.treas.gov/domfin/.

The Treasury also sells nonmarketable securities to the public in the form of U.S. Savings Bonds, State and local government series securities, foreign-series securities, domestic-series securities, and mortgage guaranty insurance company tax and loss bonds. Nonmarketable securities that the Treasury issues to the public are not transferable, and they can be purchased and redeemed, through a Federal Reserve Bank, or in the case of U.S. Savings Bonds, through issuing and paying agents (mostly commercial banks and thrifts).

Generally, interest income on Treasury securities is reportable for Federal income tax purposes but is not reportable for State or local income tax purposes. This document contains information on the income tax treatment of securities, including U.S. Savings Bonds and inflation-indexed securities, where there may be special Federal income tax considerations.

The Treasury does not provide investment or tax advice. You may want to consult with a financial professional before you decide to purchase a particular Treasury security.