Bonds for individuals: Treasury bills, government bonds and bond funds
Fixed income means lending money in exchange for interest — to a government, a company or through a fund. It is the stable part of a portfolio and the natural home for money you will need within a few years. But "fixed" does not mean "risk-free": prices move with interest rates and with the issuer's creditworthiness.
- Governments issue bills (up to 12 months), notes and bonds (longer maturities).
- Held to maturity, you receive what was agreed; sell early and the price depends on rates at that time.
- When rates rise, the price of existing bonds falls — more so the longer the maturity.
- You can buy them directly from the Treasury, through a bank or broker, or via bond and money market funds.
- Check how interest and gains are taxed where you live.
The main products
- Treasury bills: maturities of a few weeks to 12 months. Bought below face value; at maturity you receive the full face value — the difference is your return.
- Government notes and bonds: longer maturities, pay a periodic coupon and return face value at maturity.
- Corporate bonds: issued by companies; pay more interest for more default risk.
- Bond and money market funds: diversified portfolios managed professionally. Money market funds invest very short term and barely fluctuate. See savings account vs money market fund.
Why bond prices change
Imagine a 10-year bond paying a 3% coupon. If new bonds pay 4% the next day, nobody will pay 100 for yours: its price falls until its yield matches the market.
Holding to maturity
Price falls only become losses if you sell early. If you buy a government bond and hold it to the end, you receive the agreed coupons and face value, barring default.
That is why it makes sense to match the maturity to when you will need the money: bills or money market funds for 1–2 years, medium-term bonds for goals 3–5 years away. Bond funds have no single maturity, so their value moves with rates: check their average duration.
How to buy government debt
- Directly from the Treasury: in the US through TreasuryDirect; in Spain through the Tesoro Público website — no brokerage fees.
- Through your bank or broker: at auction or on the secondary market, sometimes with trading and custody fees.
- Through funds: easier and diversified, with a management fee and no fixed maturity.
Always compare the yield net of fees across options.
What role it plays in a portfolio
- Reduces volatility: usually falls much less than stocks in a crisis.
- Provides liquidity to rebalance or buy during falls.
- Fits near-term goals: a house deposit, a renovation, the first years of retirement.
How much you hold depends on your horizon and your risk tolerance.
Frequently asked questions
What are Treasury bills?
Short-term government debt (up to 12 months). Bought below face value; at maturity you receive the full face value.
Can you lose money in bonds?
Yes, if you sell before maturity after rates rise, or if the issuer defaults. Holding government bonds to maturity is very low risk.
How do I buy Treasury bills?
Directly from the Treasury (TreasuryDirect in the US, Tesoro Público in Spain) or through a bank or broker.
Individual bond or bond fund?
An individual bond gives certainty if held to maturity; a fund diversifies and is easier, but its value moves with rates because it has no single maturity.