Where can I buy government bonds?

In general there are two broad categories investors can consider when looking to invest in government government bonds : Treasury bonds and municipal bonds. Both are options for investors seeking to build out the low-risk assign of their portfolio or equitable save money at higher, low-risk rates .

Government bonds can besides be a great seat to start if you are fresh to shackle investing overall. Treasuries and municipals and are normally lead low-risk bond options besides considered aboard money marketplace accounts, certificates of deposit, and high yield savings accounts .

Key Takeaways

  • Government bonds are low-risk, low-yield fixed-income securities that can be attractive to more conservative investors, or those looking for tax breaks.
  • TreasuryDirect is a website that allows investors to buy treasuries directly from the U.S. government at auction.
  • Some of the other ways to buy treasuries include ETFs, money market accounts, and from a broker.
  • Municipal bonds are issued by state and local governments or agencies and can provide tax-exempt interest income to qualified investors. These can be purchases through a broker or by way of managed fund or ETF.

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Government Security

introduction to Government Bonds

first, let us acquaint ourselves with some common terms to be aware of when looking at government bonds :

  • Treasury bond: A security issued by the United States government.
  • Municipal bond: A debt security issued by a local or state municipality.
  • Maturity: The life of the bond.
  • Yield: The yield offered as a return on the debt security’s investment. There are several different types of bond yield and methods for calculating them.
  • Coupon: The amount of regular periodic interest payments.
  • Bond rating: A rating that is provided by a rating agency based on creditworthiness qualities and characteristics.

Government bonds are basically debt obligations of governments. Federal ( autonomous ) bonds are issued by the union government with the federal government ’ s unmarried credit denounce backing them all. As of July 2020, the U.S. federal government holds the highest abdominal aortic aneurysm rat from Fitch, an abdominal aortic aneurysm from Moody ’ south, with an AA+ rat from Standard and Poor ’ s .

Both union Treasury bonds and municipal bonds use the revenues from the bonds for financing politics projects or activities. These government bonds besides come with some special tax advantages that make them singular in the attachment universe overall.  The type of government adhere you are looking for determines where you can purchase it, so you need to decide which type of shackle you would like to buy first .

bribe Government Bonds : Treasuries

Treasury bond yields will vary by maturity. As of December 2020, the U.S. Treasury adhesiveness market offered the keep up yields :

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persona by Julie Bang © Investopedia 2020
The U.S. Treasury has made buying Treasury bonds easy for U.S. investors by offering the bonds through their web site, TreasuryDirect. here ’ s a bit-by-bit guidebook to using TreasuryDirect. TreasuryDirect report holders can besides participate in Treasury auctions, which are conducted approximately 300 or more times per year.

The first footstep in the auction process is the announcement of approaching auctions, which are generally declared four to five business days advance. This mistreat discloses the count of bonds that the Treasury is selling, the date of the auction, maturity date, terms and conditions, eligible participants, and competitive and non-competitive wish close times. noncompetitive bids guarantee that investors will get the full purchase come of the security system at the yield determined during the auction by competitive bidding. competitive bids specify the concede expected for security.

The second step of the auction serve is the auction date when the Treasury reviews all bids received to ensure complaisance with the full arrange of applicable rules. All compliant noncompetitive bids are accepted up until publish day, ampere farseeing as they are appropriately postmarked.

The final examination mistreat of the auction process is the issue of the securities. Securities are deposited to accounts, and requital is delivered to the Treasury.

  • What you will need: a computer, internet connection, the treasurydirect.gov link, your social security number, and personal information, $100 to start investing
  • What to do: The Treasury makes TreasuryDirect pretty simple. All you need to do is:
  1. Go to the TreasuryDirect website
  2. Setup an account
  3. Start investing based on your maturity and yield preferences. The minimum for investment is $100. With $100 you can invest in Treasury bonds across the entire yield curve spectrum. 

additionally, investors can besides buy Treasury bonds through a brokerage house score. Charles Schwab, Fidelity, and Vanguard are a few of the peak brokerages that offer Treasury bind induct. Some investors may besides be able to invest in treasuries through their bank or local Federal Reserve.

Managed Funds

many investors may turn to professional money managers for their Treasury invest. Like all asset classes, treasuries can be invested in through several common funds and exchange-traded funds ( ETFs ). A variety of government shackle ETFs are available, including short-run treasuries, long-run treasuries, and TIPS. Most of these ETFs have humble annual fees, much below 0.20 % per year .

Some of the most popular Treasury funds include :

  • SPDR® Portfolio Long Term Treasury ETF (SPTL)
  • iShares 7-10 Year Treasury Bond ETF (IEF)
  • iShares 3-7 Year Treasury Bond ETF (IEI)
  • iShares 1-3 Year Treasury Bond ETF (SHY)
  • SPDR® Bloomberg Barclays 1-3 Month T-Bill ETF (BIL)

money Markets

You can besides buy Treasury bills by investing in a Treasury money marketplace reciprocal fund. once you invest in one of these funds, buying and selling T-bills becomes easy. however, there are several significant limitations. You should credibly open an report at the brokerage offering the Treasury money market common fund that you want. Treasury money marketplace funds besides tend to have high minimum investment requirements or senior high school fees.

buy Government Bonds : Municipals

municipal bonds are the second type of politics alliance option. They are issued by state governments or local municipalities for fund infrastructure and politics activities in these areas.

While they fall in the like broad category as treasuries, municipal bonds are a class of their own. They are government-sponsored but they have their own credit fink organization which is like to the standards for corporate alliance credit ratings. Municipal bond issuers and bonds are rated from high to depleted quality by recognition rate agencies—namely, Moody ’ mho, S & P, Fitch, and Kroll. Individual bonds may besides come with their own individual credit rating.

Below is a ratings chart provided by MSRB :


municipal Bond Ratings .
municipal bonds are besides evaluated by maturity, ranging from 1-month to 30 years. Below is a front at the municipal bond yield bend for the AAA municipal market as of December 2020.

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trope by Julie Bang © Investopedia 2020
Finding comprehensive information on the fully tilt of municipal bond investments can be slightly more challenge than for treasuries. Beginning in 2008 the Municipal Securities Rulemaking Board ( MSRB ) introduced the web site EMMA for providing investors with greater transparency on municipal bonds. EMMA provides wide disclosure on all municipal bonds brought to market. It is not a platform for buying and selling municipals.

Four Channels for Investment in Municipal Bonds

Buying municipal bonds follows more traditionally with the standards in the shackle market overall. thus, most investors buy municipal bonds through brokerage house accounts. however, in the municipal bond worldly concern, investors have a few choices. The MSRB suggests the follow four channels for individual investors looking to buy municipal bonds :

  1. Full-service broker dealer. Can include companies like Schwab, Fidelity, and Vanguard. Offers communication with a broker dealer placing trades for you.
  2. Registered Investment Advisor (RIA): Usually an advisor from a specialty firm. Also offers communication with a broker dealer to place trades for you.
  3. Self-managed account. Can also include companies like Schwab, Fidelity, and Vanguard. Investors place their own trades and manage their own portfolios.
  4. Managed funds. Mutual funds and ETFs focused on municipal bonds. 

These four categories can overlap slightly in their offerings. serious investors looking to go deep in the municipals market may want to work with a full-service broker principal or RIA that specializes in municipal bind investing which can allow for the electric potential opportunity to take depart in primary coil issue of municipal bonds. generally, institutional investors comprise the majority of basal municipal market buyers. Most investors however will be glad with trade municipal bonds on the secondary market which can be done through full service brokers, RIAs, and self-managed accounts .

Managed Funds

Since municipal bonds are more complex than Treasury bonds, many investors choose to use manage funds, deploying the complex investment management to professionals .

Below are a few of the commercialize ’ s most popular municipal attachment funds :

  • iShares National AMT-Free Muni Bond ETF (MUB)
  • SPDR® Nuveen Bloomberg Barclays Short Term Municipal Bond ETF (SHM)
  • SPDR® Nuveen Bloomberg Barclays Municipal Bond ETF (TFI)
  • First Trust Managed Municipal ETF (FMB)
  • PIMPCO Intermediate Municipal Bond Active Exchange-Traded Fund (MUNI)

tax Advantages

For federal bonds, the interest earned is by and large excuse from state, and local taxes but capable to federal taxes. For municipal bonds, the interest earned is absolve from federal taxes. Municipal bonds are besides tax free for investors investing in bonds from their home state. The municipal shackle commercialize besides has offerings for investors who manage the alternative minimum tax.

Some other special Government Bond Considerations

Below are some answers to a few extra questions you may have when considering government bonds .

How Does the Government Bond Bidding Process Work ?

Investors in treasuries can place competitive or non-competitive bids to obtain treasuries in the primary market. The Treasury has regularly scheduled auctions. competitive bids are normally done through a broker. TreasuryDirect uses non-competitive bids .

Should I Buy a Government Bond ?

Government bonds can be a great choice for the low-risk parcel of an investor ’ south portfolio. They can besides be a great way to begin investing in the bond marketplace overall with little risk. Yields on government bonds range from approximately 2.20 % to 3.00 % . Many investors look to government bonds as options for retainer along with money commercialize accounts, certificates of down payment, and high yield savings accounts. ultimately the investing in a government bond is broadly based on investment goals, risk permissiveness, and return .

Should I Get a Federal or Muni Bond ?

The option between federal and muni bonds is besides generally based on investment goals, risk tolerance, and revert. The markets for treasuries and municipal bonds are very different indeed many investors besides consider the complexities of investing in each in their invest considerations .

What Government Bond Alternatives Are Available ?

For investors seeking to deploy the management of federal and/or municipal bonds to professional investors, there can be many managed store options to consider as alternatives to investing directly in treasuries or municipals. See the managed funds provided above for some options .

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