Typical investor

The typical investor in US Government securities are safer, older, income-seeking investors. There is no security with lower levels of default (credit) risk, as the chance of default is virtually non-existent. Federal debt levels are high, but the government prints its own money. The chances of the Treasury being unable to make required interest and/or principal payments is very low. US Government securities have lower yields due to their lower levels of risk. This is a tradeoff, but it’s the right investment for conservative (low-risk) investors.

Treasury bills and CMBs are most suitable for investors looking to park cash in a safe, short term investment. They don’t pay ongoing income, but with maturities as short as a month for T-bills and as short as a day for CMBs, investors receive their money back quickly.

Treasury notes and bonds are suitable for investors seeking ongoing income for longer periods of time. Investors in longer-term Treasury products must be comfortable with additional risks (like interest rate and inflation risk).

STRIPS and Treasury Receipts are long term zero coupon securities that are not suitable for investors seeking income. These are great investments for those seeking a payout in the future but don’t need income along the way. Many investors seek these out for retirement plans when income isn’t needed for a long period of time. Additionally, the retirement plan shields them from phantom tax. Additionally, young parents utilize these securities to save for their young or unborn child’s education (usually college).

Mortgage-backed securities, which include pass through certificates and CMOs are suitable for safer investors seeking consistent income. These securities pay monthly income and are typically AAA (or highly) rated. Of course, safer investors should avoid investments in private label CMOs and CDOs.