2.7 U.S. Treasury Securities
US Treasuries are the global risk-free benchmark. Understanding T-Bill discount pricing and the state tax exemption is essential for the SIE.
Key FINRA Exam Takeaways
- Backed by the full faith, credit, and taxing power of the US federal government (virtually default-risk free).
- T-Bills: Short-term (4, 8, 13, 17, 26, 52 wks), issued at discount, mature at par, no stated coupon.
- T-Notes (2-10 yrs) and T-Bonds (20-30 yrs): Pay semiannual interest, quoted in 32nds.
- TIPS: Principal is adjusted semiannually based on CPI inflation.
- Taxation: Federal income taxable; 100% EXEMPT from state and local income taxes.
Knowledge Checkpoint • Section 2.7
Interest earned on US Treasury notes and bonds is subject to which tax treatment?