How To Buy Treasury Securities

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Investors have several ways to buy treasuries. These investments include Treasury bills, Treasury notes, Treasury bonds, Floating Rate Notes (FRNs), and Treasury Inflation-Protected Securities (TIPS).

Individuals with brokerage accounts can invest using exchange-traded funds (ETFs), Treasury money market funds, or purchase bonds on the secondary market. The U.S. government offers investors direct access to treasuries at the TreasuryDirect website.

Key Takeaways

• TreasuryDirect allows investors to buy Treasury bonds and bills directly from the U.S. government.
• Investors must transfer bonds from TreasuryDirect to banks or brokerages if they want to sell them before the maturity date.
• Investors can buy treasuries throug ETFs, money market accounts, and the secondary market.

TreasuryDirect

TreasuryDirect is an electronic marketplace and online account system where investors can buy, hold, and redeem eligible book-entry Treasury securities. The U.S. Department of the Treasury runs the TreasuryDirect system.

Investors with TreasuryDirect accounts can participate in Treasury debt auctions and purchase debt securities including U.S. savings bonds directly from the U.S. Treasury. Eligible securities for TreasuryDirect purchases include Treasury bills, Treasury notes, Treasury bonds, Floating Rate Notes (FRNs), and Treasury Inflation-Protected Securities (TIPS).

Individuals who choose to purchase directly through the TreasuryDirect website should be aware of the following steps and rules when opening an account:

• Investors must have a valid Social Security Number or Taxpayer Identification Number (TIN) to access the BuyDirect system.
• Individuals must have an address within the United States and an email address.
• A checking or savings account is required.
• Individuals can choose the product type or term, source of funds, and the amount to purchase.
• Investors can schedule the date of purchase, although dates are subject to availability.
• Securities are generally issued to an account within two business days of the purchase date for savings bonds or one week of the auction date for bills, notes, bonds, FRNs, and TIPS.
• At maturity, T-bills, notes, and bonds may be reinvested.
• The minimum purchase amount for savings bonds is $25 per person. Above that, savings bonds are sold in increments up to $10,000. An investor may submit noncompetitive bids from $100 up to $10 million for T-bills, notes, bonds, and TIPS in $100 increments.

Investors can't redeem Treasuries purchased on TreasuryDirect before maturity. To sell them, individuals must transfer securities to a broker and then sell them on the secondary market through that broker.

Treasury Auctions

TreasuryDirect account holders can participate in Treasury auctions. In 2023, there were 428 public auctions for $22 trillion in Treasury debt securities. The Treasury Department will announce the date, the amount of a security to be auctioned, its issue and maturity dates, terms and conditions, eligible participants, and deadlines for competitive and noncompetitive bids.

Noncompetitive bids are limited to $10 million and guarantee the bidder will receive the desired amount of the auctioned security at a price set by competitive bidders in the auction. Competitive bids specify the expected discount rate, yield, or spread and may only be filled in part, or not at all. Most individual investors make noncompetitive bids, while competitive bids typically come from financial institutions.

On the auction date, the Treasury reviews all bids for compliance with applicable rules. Compliant noncompetitive bids must be received by the close time stated in the auction announcement. Securities are deposited to investor accounts, and payment is delivered to the Treasury.

If investors seek guidance from a financial advisor to buy Treasuries for their retirement account, the advisor is subject to the Retirement Security Rule, which makes them a fiduciary and requires that they act in the best interest of their clients. The rule, which was set to take effect in September 2024, is currently on hold due to litigation.

Buying Through Banks and Brokerages

• ETFs: ETFs are bought and sold like stocks, and many qualify for commission-free trades. Investors can choose from government bond ETFs focused on short-term Treasuries, long-term Treasuries, TIPS, and FRNs. Treasury ETFs can be held in IRAs and other tax-advantaged retirement accounts.
  
• Money Market Accounts: Investors can choose a Treasury money market mutual fund. Such funds typically have low fees and low yields limited by rates on the shortest-term Treasury bills. The U.S. Treasury's Office of Financial Research tracks the investments of U.S. money market mutual funds in the aggregate and by financial institutions.
• Secondary Market: Many brokerages give their customers full access to the bond market, but fees vary. Many of the best brokerages offer free trading for Treasury bonds. Bonds bought on the secondary market through a broker can be held in an IRA or another tax-free retirement account. Buying on the secondary market also makes it easier to sell Treasury bonds at a later date.
  

Selling Treasuries

To sell Treasuries held in an account at TreasuryDirect, investors must transfer them to an account with a bank, broker, or dealer, and then place an order to sell them. A Transfer Request Form must be completed to transfer Treasuries from a TreasuryDirect account. Individuals can also redeem a savings bond electronically, specifying whether it is a partial or full redemption, and where redemption proceeds should be deposited.

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How Can Investors Buy and Sell Short Term Treasury Bills?

Investors buy short-term Treasury bills on TreasuryDirect, the U.S. government's portal for buying U.S. Treasuries. Short-term Treasury bills can be bought and sold through a bank or broker.

How Many Treasury Bills Can an Individual Buy?

The maximum amount of Treasury bills that one can buy in a single auction is $10 million if the bids are noncompetitive, or 35% of the offering amount for competitive bids.

How Do Investors Buy Canadian Treasury Bills?

Individuals can buy Canadian Treasury bills from a financial institution or a broker. The minimum investment for purchasing a Canadian Treasury bill is CA$1,000.

The Bottom Line

Treasuries are a great way to diversify an investment portfolio and reduce risk. These securities are backed by the full faith and credit of the U.S. government. Treasuries can be important in a retirement portfolio because they are liquid, low-risk, and provide an income stream.