How To Enter the Treasury Marketplace
Buying a Treasury bill, note, bond, or inflation-protected security is a heck of a lot easier than buying most other bonds. With Treasuries, you needn’t worry about such things as credit rating, callability, liquidity, and getting socked with high broker markups.
Uncle Sam’s bonds can be purchased directly from, and sold to, the old man himself. Or not. It’s your call.
Buy direct or through a broker
Buying directly from, or selling to, the federal government is simply a matter of logging onto the website TreasuryDirect. Or, if you prefer to do it the old fashioned way, you can contact Treasury Direct at 1-800-722-2678, from 8 a.m. to 6 p.m. Eastern time. (For savings bonds, call 1-800-245-2804.)
Buying and selling direct is certainly the most economical way to go. In fact, you pay no charge for any transactions. You can keep all your Treasuries with Treasury Direct, and you incur no fee.
The only reason to go through a broker, really, would be if you have a compulsion to house all your assets under one roof. Most brokers charge a minimal amount for dealing in Treasuries.
The market for Treasuries is extremely efficient, which means that it involves so many buyers and sellers and bonds that the chance of finding a deal (as you may — or may not — in the corporate bond market) is rather remote. What you pay for a ten-year Treasury is pretty much what the next guy is going to pay. Your yield is pretty much what the next guy is going to get.
Choose a new or used bond
Does it make much difference whether you buy new (on-the-run) or old (off-the-run) Treasuries? In other words, if you want to make a 10-year investment in Treasuries, does it matter whether you buy a new 10-year note or an old 20-year bond that has 10 years till maturity?
No, not much. The yields should be very, very similar. The only difference, really, is that when buying the old bond, you’ll have to go through a broker, and the broker will likely charge you a nominal fee.
Tap Treasuries through mutual funds and exchange-traded funds
U.S. investors have hundreds of federal government bond mutual funds and exchange-traded funds from which to choose. You can also buy your government bonds packed in something called a unit investment trust. Whichever of these three options you choose, you could, in a flash, own a bevy of Treasuries, either with similar or different maturities, conventional or inflation-adjusted. If you choose your fund well, your instant diversification comes at very little cost.
Diversification of Treasury bonds isn’t as important as it is with, say, corporate high-yield bonds, but still . . . for the minimal cost of some bond funds (as little as 10 basis points, or 10/100 percent a year in operating expenses), they make a darned good option for most investors.