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TREASURY BONDS. Treasury bonds also pay their interest on a semiannual basis and are sold at or near their par values. However, T-bonds have maturities that are greater than 10 years, going all the way up to 30 years. Generally, analysts use the 10-year and 30-year yields as benchmarks when discussing the economy and interest rates. Like T-bills and T-notes, Treasury bonds are highly secure investments.

Treasury bills aren’t callable, due to their short-term maturities. Treasury notes are also not callable. However, Treasury bonds may be. Some longer-term bonds may be callable at par five years before they mature. Otherwise, they aren’t callable. The fact that generally these securities aren’t callable, coupled with their high credit rating, makes Treasury bills, notes, and bonds an important part of some investors’ portfolios.

Generally, the interest and capital gains on Treasury notes and bonds is fully taxable for federal income tax purposes, but exempt from state and local income taxes. This somewhat increases the after- tax yield when compared with equivalent yields from corporate bonds or other interest-yielding accounts. If Treasury notes or bonds are purchased at a premium, the premium amount may be amortized over the remaining life of the bond, just as it can in the case of cor- porate bonds. The sale of Treasury notes and bonds also brings about the same result as corporate bonds when it comes to paying federal income tax.

INFLATION-INDEXED TREASURY NOTES AND BONDS. The U.S. Trea- sury has introduced Treasury Inflation-Protection securities. These are T-notes and bonds that have a fixed interest rate, which is applied to the principal amount that is adjusted for inflation or deflation peri- odically. The inflation or deflation amount is based on the adjusted consumer price index. These securities pay interest semiannually, just like regular T-notes and bonds, and the principal is paid upon maturity. This principal includes any inflation or deflation adjust- ments that have been made over the life of the security. At maturity, the greater amount of either the original par value or the inflation- adjusted principal will be paid. Therefore, if serious deflation occurs and at maturity your note or bond is not worth the original par value, you will receive the greater amount, in this case, the original par

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