Securities sold by the government are collectively referred to as treasuries and include bonds, bills and notes. Savings bonds are also a type of government bond, but are not the same as a Treasury bond or T-bond. T-bonds and savings bonds have different consequences when selling them before their maturity dates.
T-bonds have 30-year maturity dates and make interest payments twice per year until they reach maturity. The government sells these bonds at auction. Once the T-bond reaches its maturity date, the government stops paying interest on the bond and it is eligible for redemption. You cannot redeem T-bonds before their maturity dates. You may sell the bonds you own through a bank or through an investment broker.
When you sell a T-Bond, you must transfer ownership to the bank or broker who is selling it on your behalf. Banks and brokers will charge you a fee or commission to sell your bonds for your. Banks and brokers may sell your bond at a markdown price. A markdown is a percentage of the bond’s value that the bank or broker deducts to determine the bond’s sale price. For example, a $100 bond with a 10 percent markdown would sell for $90.
Interest Rates and T-Bonds
Bonds and interest rates have an inverse relationship. If interest rates have increased from the time of purchase until the time of sale, then the value of the bond may be less than the original purchase price. In this case, you may end up selling the bond at a discount and taking a loss. If interest rates have decreased in the time between buying and selling, the bond may be worth more than the original purchase price and you may be able to sell the bond at a premium and make a possible gain on the sale.
The two types of savings bond the government sells are EE/E and I Bonds. You can redeem both types of bonds 12 months after the purchase date at a bank or through the Department of the Treasury. Ownership of government savings bonds is not transferable, so you cannot sell them. If the bonds are less than five years old, then you forfeit the interest the bonds have earned in the recent three months before redemption. For example, if you redeem an EE/E bond on June 1, you don’t receive any interest the bond earned in March, April and May.
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