4.2 Treasury Securities

Series 65 Uniform Investment Adviser Law

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1 Introduction

About the Series 65 How to Use This Guide

2 Chapter 1: Economic Factors & Business Cycles

1.1 Business Cycles 1.2 Monetary Policy 1.3 Fiscal Policy 1.4 Inflation & Deflation 1.5 Interest Rates & Yield Curves 1.6 Global Economic Factors

3 Chapter 2: Financial Reporting & Analytical Methods

2.1 Financial Statements Overview 2.2 Accounting Fundamentals 2.3 SEC Filings & Annual Reports 2.4 Financial Ratios 2.5 Time Value of Money 2.6 IRR and NPV 2.7 Descriptive Statistics

4 Chapter 3: Types of Risk

3.1 Systematic (Market) Risk 3.2 Unsystematic (Company-Specific) Risk 3.3 Interest Rate & Reinvestment Risk 3.4 Inflation & Currency Risk 3.5 Liquidity Risk & Opportunity Cost 3.6 Risk Measurement & Portfolio Theory

5 Chapter 4: Cash Equivalents & Fixed Income Securities

4.1 Cash & Cash Equivalents 4.2 Treasury Securities 4.3 Agency Securities 4.4 Corporate Bonds 4.5 Municipal Bonds 4.6 Bond Pricing & Yields

6 Chapter 5: Equity Securities

5.1 Common Stock 5.2 Preferred Stock 5.3 Shareholder Rights & Corporate Actions 5.4 Equity Valuation Methods 5.5 ADRs, REITs & Other Equity Securities

7 Chapter 6: Pooled Investments

6.1 Mutual Funds 6.2 Mutual Fund Costs & Fees 6.3 Exchange-Traded Funds (ETFs) 6.4 Closed-End Funds & UITs 6.5 Hedge Funds & Private Equity

8 Chapter 7: Derivatives, Alternative Investments & Insurance Products

7.1 Options Basics 7.2 Options Strategies 7.3 Alternative Investments 7.4 Annuities 7.5 Life Insurance Products

9 Chapter 8: Client Types & Profiles

8.1 Individual Clients 8.2 Business Entity Clients 8.3 Trusts & Estates 8.4 Accredited & Qualified Investors 8.5 Suitability & Know Your Customer

10 Chapter 9: Portfolio Theory & Capital Markets

9.1 Modern Portfolio Theory 9.2 Capital Asset Pricing Model (CAPM) 9.3 Efficient Market Hypothesis 9.4 Risk & Performance Measures 9.5 Asset Allocation

11 Chapter 10: Portfolio Management Strategies

10.1 Investment Styles 10.2 Portfolio Management Techniques 10.3 Fixed Income Strategies 10.4 Return Calculations

12 Chapter 11: Tax Considerations & Retirement Planning

11.1 Capital Gains & Investment Taxes 11.2 Retirement Plans Overview 11.3 Individual Retirement Accounts (IRAs) 11.4 Education Savings Plans 11.5 Distributions & RMDs

13 Chapter 12: ERISA, Special Accounts & Performance Measures

12.1 ERISA Requirements 12.2 Special Account Types 12.3 Performance Measures & Reporting 12.4 QDROs & Special Situations

14 Chapter 13: Regulation of Investment Advisers

13.1 Investment Advisers Act of 1940 13.2 Registration Requirements 13.3 Recordkeeping Requirements 13.4 Custody Requirements 13.5 Exempt Reporting Advisers

15 Chapter 14: Regulation of Investment Adviser Representatives

14.1 IAR Definition & Requirements 14.2 Registration & Post-Registration 14.3 IARs of Federal Covered Advisers

16 Chapter 15: Regulation of Broker-Dealers & Agents

15.1 Broker-Dealer Definition 15.2 Agent Registration 15.3 Regulation Best Interest

17 Chapter 16: Securities Registration & Exemptions

16.1 Uniform Securities Act 16.2 Securities Registration Methods 16.3 Exempt Securities 16.4 Exempt Transactions

18 Chapter 17: Communications & Client Relationships

17.1 Advertising Rules 17.2 Social Media & Electronic Communications 17.3 Client Agreements & Disclosure 17.4 Proxy Voting & Other Obligations

19 Chapter 18: Ethics & Fiduciary Obligations

18.1 Fiduciary Duties 18.2 Prohibited Practices 18.3 Senior & Vulnerable Adult Protection 18.4 AML & Compliance Programs

4.2 Treasury Securities

Key Takeaways Explain This Topic AI

T-Bills mature in 1 year or less and are sold at a discount.

T-Notes mature in 2-10 years and pay semiannual coupons.

T-Bonds mature in 20-30 years and have the highest interest rate risk.

TIPS adjust principal with CPI and create taxable phantom income.

STRIPS are zero-coupon securities with maximum interest rate risk.

Treasuries are federally taxable and exempt from state and local tax.

All Treasuries are backed by the full faith and credit of the U.S. government.

Last updated: October 2026

U.S. Treasury Securities

Treasury securities are debt obligations of the U.S. government—the safest fixed-income investments available. They are backed by the full faith and credit of the U.S. government and serve as the benchmark for other interest rates.

Why Treasuries Are the Safest

• Feature Significance
• Credit Risk Zero—U.S. government can print money to pay debts
• Liquidity Highest—largest bond market in the world
• Benchmark All other rates compared to Treasury rates
• Safe Haven Investors flee to Treasuries during market stress
• Types of Treasury Securities
• Treasury Bills (T-Bills)

• Feature Description
• Maturity 4, 6, 8, 13, 17, 26, and 52 weeks
• Minimum $100
• How Sold At discount to par (no coupon payments)
• Interest Rate Risk Lowest (short maturity)
• Quotation Discount basis (basis point discount from par)

Discount Calculation Example :

• 26-week T-bill with 4% annualized discount
• Purchase price: $10,000 × (1 - 0.04 × 26/52) = $9,800
• Return: $200 over 6 months
• Treasury Notes (T-Notes)

• Feature Description
• Maturity 2, 3, 5, 7, and 10 years
• Minimum $100
• Interest Semi-annual coupon payments
• Quotation Percentage of par in 32nds (e.g., 99-16 = 99.5%)
• Benchmark 10-year note is most widely followed

The 10-year Treasury note yield is the most important benchmark in fixed income—used for mortgage rates, corporate bonds, and economic analysis.

Treasury Bonds (T-Bonds)

• Feature Description
• Maturity 20 and 30 years
• Minimum $100
• Interest Semi-annual coupon payments
• Interest Rate Risk Highest (longest maturity)
• Best For Long-term investors; income-focused portfolios
• Treasury Inflation-Protected Securities (TIPS)

TIPS protect against inflation by adjusting principal based on the Consumer Price Index (CPI).

• Feature Description
• Maturity 5, 10, and 30 years

Principal Adjustment Adjusts with the CPI (daily index ratio); interest is paid every 6 months on the adjusted principal

• Coupon Fixed rate applied to adjusted principal
• Deflation Protection At maturity, receive greater of adjusted or original principal
• Inflation Protection Direct—principal grows with inflation

TIPS Example :

• Buy $10,000 TIPS with 2% coupon
• CPI increases 1.5% over 6 months
• Principal adjusts to $10,150
• Semi-annual interest: 2%/2 × $10,150 = $101.50 (vs. $100 originally)

Tax Consideration : The principal adjustment is taxable in the year it occurs, even though you don't receive the cash until maturity ("phantom income").

Treasury STRIPS

STRIPS (Separate Trading of Registered Interest and Principal of Securities) are zero-coupon Treasury securities.

• Feature Description
• Created By Stripping coupon and principal from regular Treasuries
• Structure Sold at deep discount; no periodic payments
• Interest Rate Risk Maximum (duration equals maturity)
• Reinvestment Risk Zero (no interim payments to reinvest)
• Taxation Annual "phantom tax" on imputed interest

STRIPS Duration : A 20-year STRIP has a duration of 20 years—the maximum possible. This means extreme price sensitivity to interest rate changes.

Tax Treatment of Treasuries

• Tax Type Treatment
• Federal Income Tax Taxable
• State Income Tax Exempt
• Local Income Tax Exempt

This state tax exemption makes Treasuries particularly attractive for investors in high-tax states like California and New York.

• Treasury Quotations
• T-Bills (Discount Basis)

Quoted as annualized discount rate from par:

• Bid 4.05%, Ask 4.00% means dealer buys at 4.05% discount, sells at 4.00% discount
• Notes and Bonds (32nds Pricing)

Quoted as percentage of par in 32nds:

• 99-16 = 99 + 16/32 = 99.5% of par = $995 per $1,000 face
• 101-08 = 101 + 8/32 = 101.25% of par = $1,012.50 per $1,000 face
• Treasury Auctions

• Auction Type Description
• Competitive Bid Specify yield; may not get filled
• Non-Competitive Bid Accept auction yield; guaranteed allocation

Most individual investors use non-competitive bids through TreasuryDirect.

In Practice: How Investment Advisers Apply This

Portfolio applications :

• Use T-Bills for short-term reserves and near-term liquidity needs
• Use T-Notes for intermediate-term objectives
• Use T-Bonds for long-term income (accept higher interest rate risk)
• Use TIPS for inflation-sensitive clients (retirees, pension plans)

Client considerations :

• High-tax state residents benefit from state tax exemption
• TIPS create taxable phantom income—better in tax-advantaged accounts
• STRIPS are best for specific future liabilities (e.g., college funding)
• On the Exam

The Series 65 exam tests your understanding of:

• Maturities : Bills (≤1 year), Notes (2-10 years), Bonds (20-30 years)
• Tax treatment : Federal taxable, state and local exempt
• TIPS : Principal adjusts with CPI; phantom income tax issue
• STRIPS : Zero-coupon; maximum interest rate risk; zero reinvestment risk
• Quotation : 32nds pricing for notes and bonds

Common formats include tax treatment and TIPS characteristics.

• Key Takeaways
• T-Bills : Short-term (≤1 year), sold at discount, lowest interest rate risk
• T-Notes : 2-10 years, semi-annual coupons, 10-year is key benchmark
• T-Bonds : 20-30 years, highest interest rate risk
• TIPS : Principal adjusts with CPI; phantom income is taxable
• STRIPS : Zero-coupon; maximum interest rate risk; no reinvestment risk
• Tax treatment : Federal taxable; state and local exempt
• All Treasuries backed by full faith and credit of U.S. government

Loading diagram... Treasury Maturity Ladder