Treasury Bond Fundamental Analysis Key Terms

Use Treasury bond fundamental analysis key terms to help understand currency rates

By Kelley Keith

Treasury bonds are one of the lowest-risk investments a company or person can make. However, that doesn't mean they're entirely safe and don't come without a downside. That's why it's important to understand how to fundamentally analyze a Treasury bond to assess its investment viability. They are essentially a loan, as the government issues debt and the taxpayer is the lender. The government will issue bonds to fund its debt obligations. Bonds always have a maturity of ten years or more. To understand the fundamental analysis of Treasury bonds in more detail, review the following key terms:

Full faith and credit of the U.S. government

The term full faith and credit of the U.S. government refers to the stability of a bond issued to pay federal debt obligation. This faith and credit comes from the fact that government can use its taxing authority to raise money to honor the obligation should an issuer default. This makes the risk in the fundamental analysis model almost zero.
Try: Examine the full faith and credit definition available at Your Dictionary.

Face value, or par value

These terms represent the amount of money you'll get back when a Treasury bond matures. Where this gets somewhat confusing is that par, or face, value isn't the price. The price of a Treasury bond will fluctuate over the life of the asset. Face value is what the Treasury bond pays at the end of its term of issuance.
Try: Evaluate the bond basics tutorial available at Investopedia.

Maturity date

The maturity date for Treasury bonds is an integral aspect of bond analysis. These dates range from 10 to 30 years with Treasury bonds. The face value of the Treasury bonds is payable at the maturity date, no matter the length. However, it will pay interest payments throughout the life of the Treasury bond.
Try: Examine the Treasury bond primer from the Investor Guide.

Coupon payment

While most Treasury bonds require you to factor in the coupon payment during the analysis of this financial vehicle, there are zero-coupon bonds. A coupon payment pays the bondholder a return every six months. Zero-coupon Treasury bonds don't have this payment and simply pay the face value of the bond.
Try: To understand zero-coupon Treasury bonds, examine the information available at the Securities and Exchange Commission.

Fixed-income investment

Fixed-income investment is another name for Treasury bonds. They have this name because the returns on the investment are usually fixed, and you can analyze it for the entire life of the investment vehicle.
Try: Evaluate the fixed-income investment resources available at the CFA Institute.

Inverse relationship between yield and the price of a Treasury bond

The interest rates and the price of Treasury bonds move in opposite directions. Therefore, if the price rises the return will fall and vice versa. This is an inverse relationship between the analytical factors.
Try: Assess the inverse relationship of the bonds primer at Wells Fargo.