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A 10 year bond price is set at auction. 10 year bonds are offered in $100 increments. The price of a 10 year bond could be equal to, greater than or less than the note's par amount. These bonds are issued at a fixed rate; the price depends on the yield to maturity (YTM). If the YTM is lower than the interest rate the price will be greater than the par value. If the yield to maturity (estimated value at maturity) is in line with (equal to) the current interest rate, you can buy the bond at par (the dollar amount printed on the bond). Thus, if the YTM is more than the interest rate, the price of the bond will be below par. In other words the yield to maturity is the estimated value of the bond's future returns at the time when it matures.
Another name for 10 year bonds is Treasury Bonds. You can purchase Treasury Bonds that mature in 10 to 30 years. Records of recent purchases of 10 year bonds in August and November 2009 show that the bonds were purchased just under par. A bond is a type of marketable security. A bond is similar to a promissory note. By purchasing a bond you are loaning the government money to pay off its debt. The government promises to pay the loan back with interest, which is what you get when the bond matures.
You can purchase a 10 year bond at Treasury Direct. The Treasury Direct website gives you a rather complicated formula to figure how much interest your bond has accrued. You can buy a 10 year bond as an individual investor; they can also be purchased by organizations, brokers, financial institutions and other entities. Organizations and institutions can bid in U.S. Treasury auctions, where these marketable securities can be purchased at a discounted price. Bidders will use the Treasury Automated Auction Processing System (TAAPS), which is a computer network system that was created by the Federal Reserve System. TAAPS receives competitive and non-competitive bids, which makes it a very efficient way to trade securities. The institution must apply for an account for the parties participating in the auctions. If you are able to buy as an employee of a corporation, you may be able to purchase 10 year bonds at reduced prices. |
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