Who Buys U.S. Treasury Bonds?

Bonds issued by the U.S. Treasury are considered to be among the safest investments in the world because the United States is unlikely to default on its timely payments of interest and principal.

 

 

Significance

The safety of investment in U.S. Treasury bonds makes them appropriate for any individual or institutional money management fund that requires extremely low risk investments.

 

Types

Pension funds and other retirement plans, bank reserve capital accounts, foreign governments, corporate cash management accounts, mutual funds, insurance companies, hedge funds and individuals who can hold their investments to maturity invest in U.S. Treasury bonds, notes and bills.

 

Savings Account Equivalent

Banks, corporations and foreign governments use U.S. Treasury bonds as an individual would use a savings account.

 

Trading Instrument

Hedge funds and investment portfolio managers at mutual funds and insurance companies buy U.S. Treasury bonds because they have uniform credit quality across all maturities and can be arbitraged against market movements in all other bond, commodity and currency markets.

 

Expert Insight

Because of Treasury bonds’ status as extremely safe investments, the returns on investment in these securities are the lowest, with AAA corporate bonds of similar maturities trading at spreads of a few basis points to over 100 basis points higher, depending on the maturity and market conditions.

 

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