Home » Is investing in American government bonds worth it in 2024? The guide

Is investing in American government bonds worth it in 2024? The guide

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Is investing in American government bonds worth it in 2024?  The guide

Co-founder of Affari Miei

February 27, 2024

L’investment in government bonds has always represented investment in safe toolsas these are authorities perceived as safe and reliable, sometimes to the detriment of other market operators.

If you are looking for information on American government bonds today I will try to give you some explanations on how to invest in these instruments, and above all we will see if it is worth it.

The tools offered are perceived as safe, and for this reason they fit well with the profile of a investor unaccustomed to riskwhich is looking for safe instruments that can guarantee returns without taking too high risks.

Today we will see all their characteristics and we will also focus on taxation of American government bonds.

Enjoy the reading!

This article talks about:

What are Government Bonds?

Before delving into the analysis of American government bonds and then get to the heart of the matter, let’s try to do a brief review on bonds.

What is a bond? When you buy a bond you are effectively lending money to State who issued it, and this money will be returned to you upon maturity.

The bonds incorporate a interest ratewhich is paid in two ways:

Periodically: this is the case of bonds with coupons which, on a regular basis, usually every six months, pay interest to the investor;
Expiring: this is the case of securities that repay at the end of the relationship.

In both cases, however, we are lending money to a state, so we have to worry about theirs first reliability as a debtor, i.e. he must be able to return the money to us.

There are also bonds issued by companies and companies, which are called corporate bonds and which must comply with fairly restrictive requirements: however, they are usually less reliable than state ones, even if this is not always the case.

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American government bonds

I American government bonds are the bonds which are issued by the US government.

They are of different types, have different durations and peculiar characteristics: treasury is the term used to generically indicate i American government bondsand then another term is added to this term to indicate the specific category.

Let’s see together what are the various American securities that you can choose for your investment.

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Treasury Bill

They are the titles a short term, which have maturities of 4, 13, 26, or 52 weeks. This type of securities does not pay periodic interest, because they are purchased at a discount compared to the nominal value, i.e. they are issued below par.

The return on these securities is given by the difference between the purchase price and the selling price. Usually the yield on this type of security is low, but it has an advantage in that it can be sold at any time.

Treasury Note

Instead, they are government bonds medium/long termas their maturities are equal to 2,3,5,7 and 10 years.

In this case one is recognized semi-annual coupon at a fixed interest rate and on the maturity date you will receive the face value of the bond.

Treasury Bond

These are the long-term government bondsin fact they have a maturity of 30 years.

They recognize the investor a semi-annual coupon at a fixed interest rate.

This type of securities offers interest rates that are usually higher than other securities, as they are riskier because there could be a peak in theinflation which would reduce the value of interest payments.

Treasury Strips

They are securities for which the investor does not receive interest payments, but is reimbursed for theentire nominal value upon maturity of the bonds. In fact, they mature “at par”.

They are also known as zero coupon bond precisely because they do not pay coupons or interest.

Treasury Inflation-Protected Securities (TIPS)

This type of government bond also deserves mention.

It’s about variable income US treasury bondswhich aim to protect invested capital from inflation.

They expect the invested capital to be reevaluated periodicallytaking into account the trend of inflation.

These securities are issued with maturities of 5, 10 and 30 years. Overall, these are safe securities as they are able to offer greater guarantees in the long term.

Which titles you can choose

Currently on the market we find these bonds, with relative yield:

USA 1 month: 5,49%
USA 2 months: 5,52%;
USA 3 months: 5,40%;
USA 4 months: 5,42%;
USA 6 months: 5,36%;
USA 1 year: 5,05%;
USA 2 years: 4,69%;
USA 3 years: 4,47%;
USA 5 years: 4,29%;
USA 7 years: 4,30%;
USA 10 years: 4,27%;
USA 20 years: 4,52%;
USA 30 years: 4,38%.

(Fonte: Tradingview)

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Which title to choose?

These are securities that are issued by United States governmentwhich can count on good solidity and reliability, since we are talking about the largest economy in the world.

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So how do we choose?

It all depends on what we are looking for.

First of all it is good to know that i prices of these securities depend on supply and demand, as happens with every financial instrument.

Then it must be remembered that there are further factors capable of influencing bond prices:

To the duration: if the duration is longer, there are greater risks;
The expiration date: Since new bonds are always priced at current interest rates, they usually trade at or near par, and therefore at their face value. The closer the maturity comes, the more the bond will almost appear to be a return of the nominal value;
He rating: the rating assigned by specialized agencies such as Standard & Poor’s is very important. We start from the assumption that the probability of a government’s insolvency is low, especially in the case of the USA, however the riskiest bonds are listed at a lower price than those issued by a state with a low risk of insolvency.

When we choose a title we also need to understand if we are interested in receiving results periodic annuitiestherefore we should focus on bonds that pay coupons, while if we are not interested in income we can focus on bonds that return the value at maturity.

Nowadays i US government bonds have higher returns than Italian government bonds, which we talked about here.

As regards the choice of title, if you want further protection, you can choose from the titles with the inflationary hedgewhich offer slightly lower returns, but give greater guarantees of certain returns over time.

Taxation of US government bonds

It is also important to understand how you pay for them taxes on government bonds, since they affect the yield.

In fact, taxation is an element of particular importance: you will have to take into account tax laws and regulations which will also significantly affect your returns.

In the case of American government bonds, the taxation is equal to 12.50%, since it is a country that falls within the “White list“. As you can see, the rate is reduced compared to that foreseen for other securities issued on the financial markets, which are instead taxed at 26%.

We can give an example on US treasury taxation: If an investor holds government securities issued by the United States federal government such as treasury bills, the interest returns generated by these securities are subject to taxation. For example, if an investor has $10,000 in treasury bills with a gross annual yield of 2%, the $200 in annual interest is taxed at 12.50%, so the investor will have to pay $25 (200×12.50 %) of taxes. At this point, the net return he will have left will be $175 (200-25).

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My Business Opinions

So, what are the best US dollar bonds? Since we have finished our discussion on American government bonds and we have seen the various types of bonds that it is possible to subscribe to, let’s try to understand whether it is an interesting investment or not.

Certainly an investment in these tools is relatively simple, although it still requires a bit of information and planning.

Furthermore, as you have seen, not all government bonds are the same, so before choosing which one to invest in, I advise you to better understand your strategy and only then to make your decision. For example, try to understand if you are looking for bonds that give you coupons, or if you are interested in receiving the capital at maturity.

Surely if you decide to invest in government bonds it is because you are looking for a very calm and almost risk-free investment, and you know that the Treasury Usa they are considered as such, as they have an extremely low probability of default, since they are issued by the US government.

These government bonds they are in fact considered as safe haven assets, given that you can use them to protect yourself from crises.

The only thing you need to keep under control are the dollar fluctuationswhich could compromise your investment.

Now that you have information about American government bonds you can make your decision with knowledge.

You certainly need to know that it is a safe investment, but that naturally it cannot offer you exciting returns, but if you are looking for a “safe haven” then this is what is for you.

Before saying goodbye, however, I would like to leave you these resources with which you can begin your investment journey:

Good continuation.

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