Treasury Bond Price

U.S. Treasury bonds are offered for a term of thirty years, whereas notes are offered for a term of between one and thirty years, and bills are offered for a term of only one year or less. When each of these debt instruments reaches the end of its term, it is considered 'matured,' and no longer pays interest, but can be redeemed for its full face value.

The price of Treasury bonds and the subsequent interest they receive varies. When inflation expectations rise and interest rates rise or, in terms of bond pricing, when the discount rate used to calculate the bond's price increases, the bond's price drops. The opposite scenario would also be true: when inflation expectations fall, the price of bonds increases.

The price and yield of some Treasury bonds are determined at auction. The price may be equal to, or less than, or even greater than the face value of the bond. For example, it is possible to buy a 30-year Treasury bond that's face value is $100,000, and pay that amount, or less than that amount, or even more than that amount. The prices of the bonds vary because of the interest, or yield, that they are expected to give.

When investors want to buy a bond at auction, they must place a competitive bid, or a non-competitive bid. With a competitive bid, the investor specifies the yield they are willing to accept. The bid may be accepted in the full amount specified if the bid is equal to or less than the yield determined at auction; or may be accepted in less than the full amount desired if the bid is equal to the high yield; or the bid may be rejected if the yield desired is higher than the yield set at auction. A competitive bid must be placed using a bank, broker or bond dealer.

However, if an investor places a noncompetitive bid, he agrees to accept the interest rate determined at auction. A noncompetitive bid is placed through TreasuryDirect, bank, broker, or dealer. The bid will be accepted, and the investor is guaranteed to receive the bond desired, but at the price decided by the auction.