How to Buy Treasury Bonds

Treasury Bond Brokers and Mutual Funds

Like restaurants, Treasury bond brokers vary in services offered. Some wait on you hand and foot, others only take and deliver your order. Let's look at the options:

  • Full-service brokers, as the name implies, do it all. They help you define your investment goals and then research and choose the bonds to meet them. They have the greatest number and variety of issues for sale. Some full-service brokers are also primary dealers. Service has a price, of course. Maintenance and transaction fees can total several hundred dollars a year.
  • Your bank may also trade in bonds. While it may offer many services for many different fees, it will be limited to, and biased toward, the bonds it owns.
  • Discount brokers take your orders to buy and sell but leave the decision making up to you. They also carry fewer types of bonds. If you want a 2008 issue with a 5.75 percent yield, for instance, they may have to buy it from a primary dealer. Their fees run about 20 percent to 30 percent less than those of full-service firms.
  • Online brokerage services provide professional resources to the astute amateur, including real-time market updates and profit-loss calculators. Individual investors use these services to make trades online for up to 95 percent less than trades made through a full-service broker.

Treasury bonds can be an ingredient in investment buffets called mutual funds, which are actually companies jointly held by a group of investors. A mutual fund's holdings, or portfolio, may consist of stocks, bonds and other investments. They're managed by outside advisers who choose the portfolio's makeup -- you may pay those advisers fees of up to 8.5 percent of the cost of the fund when you buy or sell it.

Compared to Treasury bonds, mutual funds are more accessible and flexible. You can buy an almost unlimited number of shares and sell them at will. The portfolio approach provides security through diversifying (that is, spreading out) your investment: If bond prices are plummeting, stocks might buoy up the fund's return.

Mutual funds fall into three main categories based on the type of investment:

  • Bond funds may comprise long-maturing Treasury and municipal issues (income funds) or shorter-lived Treasury bills and notes (money market funds).
  • Stock funds, or equity funds, promise varying degrees of rewards and risk depending on the earnings of the companies it hold shares in and the general stability of the stock market.
  • Balanced funds strive to offer both security and rewards by holding both bond and stocks.

Having stocked you with information, we'll wrap up this discussion on the next page with points to ponder before purchasing a Treasury bond.