Treasury Direct: Your Direct Access to U.S. Treasury Securities

Treasury Direct is the online platform through which investors can purchase U.S. government securities directly from the U.S. Treasury. Such securities include Treasury bills (T-bills)Treasury Bills (T-Bills)Treasury Bills (or T-Bills for short) are a short-term financial instrument issued by the US Treasury with maturity periods from a few days up to 52 weeks., Treasury bonds, Treasury notes10-Year US Treasury NoteThe 10-year US Treasury Note is a debt obligation that is issued by the US Treasury Department and comes with a maturity of 10 years., or savings bonds that are backed by the U.S. government.

Treasury Direct is most often used to purchase government bonds when they are initially issued and not yet traded on secondary markets (similar to an IPOInitial Public Offering (IPO)An Initial Public Offering (IPO) is the first sale of stocks issued by a company to the public. Prior to an IPO, a company is considered a private company, usually with a small number of investors (founders, friends, family, and business investors such as venture capitalists or angel investors). Learn what an IPO is). Investors may still purchase these investments from more traditional channels, such as banks or brokerages.

How Does Treasury Direct Work?

Treasury securities are usually sold at auction at the time that they are issued for sale to the public. Through the auction process, the securities’ rate and yield are established. Interested parties can place two types of bids on the securities when they are sold: competitive bids and non-competitive bids.

Competitive bids are placed when bidders specify a given rate (also known as yield or discount rate) that they are willing to accept. Non-competitive bids are placed when bidders accept the rate or yield that results from the auction process. Naturally, the non-competitive bidders get their orders filled first. The remainder of the securities is then allocated to competitive bidders, from the lowest bid to the highest bid.

For investors to open a new Treasury Direct account, four requirements must be fulfilled, as follows:

• Investors are required to submit a U.S. Social Security number (or another form of identification such as a Taxpayer Identification Number).
• Investors must reside in the U.S. and present a valid U.S. address.
• Investors must provide the account details for a valid checking or savings account.
• Invest must provide a valid email address.

It is important to note that other entities such as limited liability corporations (LLCs)Limited Liability Company (LLC)A limited liability company (LLC) is a business structure for private companies in the United States, one that combines aspects of partnerships and corp, estates, trust, or institutional investors can also maintain Treasury Direct accounts.

What are Treasury Securities?

Treasury securities are, for the most part, considered to be completely risk-free investments. While they earn a relatively low rate of return, their returns are backed by the U.S. federal government. The U.S. government is widely observed as being the safest and most creditworthy entity in the world from which to purchase securities. The high creditworthiness stems from the fact that the U.S. government has an extremely low chance of defaulting on its payments and leaving investors with massive losses.

Such risk-free securities are important in the valuation of equities and in establishing expected return figures on other investments. The higher the risk-free rate, the higher the equity risk premium (ERP)Equity Risk PremiumEquity risk premium is the difference between returns on equity/individual stock and the risk-free rate of return. It is the compensation to the investor for taking a higher level of risk and investing in equity rather than risk-free securities. will be. This is because investors demand a proportionally higher rate of return on more risky investments. If the risk-free rate climbs, then the required rate of return for riskier investments will also increase.

Conversely, if the risk-free rate decreases over time, investors don’t demand as high a return rate to be compensated for the risks they are taking on when investing in equities.

More Resources

Thank you for reading CFI’s guide to Treasury Direct. CFI is the official provider of the Capital Markets & Securities Analyst (CMSA)®Program Page - CMSAEnroll in CFI's CMSA® program and become a certified Capital Markets &Securities Analyst. Advance your career with our certification programs and courses. certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

• Federal Reserve (The Fed)Federal Reserve (The Fed)The Federal Reserve is the central bank of the United States and is the financial authority behind the world’s largest free market economy.
• Key Players in the Capital MarketsKey Players in the Capital MarketsIn this article, we provide a general overview of the key players and their respective roles in the capital markets. The capital markets consist of two types of markets: primary and secondary. This guide will provide an overview of all the major companies and careers across the capital markets.
• Secondary MarketSecondary MarketThe secondary market is where investors buy and sell securities from other investors. Examples: New York Stock Exchange (NYSE), London Stock Exchange (LSE).
• Targeted AuctionTargeted AuctionA targeted auction, also referred to as a controlled auction, is a type of auction that involves a small group of qualified buyers that compete for the acquisition of a company. The number of buyers is typically limited to about three (3) to ten (10), and only includes buyers that fit criteria set by the seller.