5 Year Treasury Bonds
What are 5 Year Treasury Bonds?
Investing in government bonds is effectively lending money to a government at an agreed interest rate for a set amount of time (futures contract). In return the government (borrower) promises to pay you interest at regular intervals and then repay your loan at the end of the term.
A 5 Year Treasury Bond is a U.S. debt obligation that matures in 5 years.
The 30 Year Treasury used to be the benchmark bond in the U.S. Now it is considered by most that the 10 Year Treasury is the yardstick.
Like shares, some bonds can trade be on the stock exchange.
Uses of 5 Year Treasury Bonds
Governments issue bonds to generate cash to fund a project, service debt or influence interest rates in accordance with the countries’ central (reserve) bank guidelines.
Investors consider government bonds from first world nations to be very low risk. This low risk means that returns are also low. Generally speaking, the longer the bond period, the greater the return will be. This reflects the fact that the longer the bond period, the more the potential risk of negative events unfolding that may lead to a default by the government.
Risks of 5 Year Treasury Bonds
The risk of Treasury Bonds lie with the chance that the government will default on the loan. While rare, this does happen. A good example of this is when Russia defaulted on its domestic currency debt in 1998. The best way to gauge the risk level is to look at the credit rating issued by recognised ratings agencies. The U.S. has never defaulted on any bond.
Traders will encounter the normal risks involved in trading should they wish to trade bonds on the stock exchange.