The U.S. Treasury resumed issuance of Treasury bonds with a 30-year bond auctioned in February 2006. The next auction is scheduled for August 2006. A Treasury bond pays interest every six months until it matures. When a Treasury bond matures, you are paid its face value. The price and yield for a bond are determined at auction.

Two types of bids are accepted:
- With a noncompetitive bid, you agree to accept the interest rate determined at auction. With this bid, you are guaranteed to receive the bond you want, and in the full amount you want. Non-competitive bids are limited to no more than $5 million from a single bidder. 

- With a competitive bid, you specify the yield you are willing to accept. Your bid may be: 1) accepted in the full amount you want if your bid is equal to or less than the yield determined at auction, 2) accepted in less than the full amount you want if your bid is equal to the high yield, or 3) rejected if the yield you specify is higher than the yield set at auction. The competitive bid is limited by the 35% rule, see below.

The U.S. Treasury resumed issuance of Treasury bonds with a 30-year bond auctioned in February 2006. The next auction is scheduled for August 2006.
To place a noncompetitive or competitive bid, you may use Bonds.com. See the Treasury Auctions section.

The 35 percent Rule
One of the requirements of the Treasury auction process is the reporting of Net Long Positions (NLPs), which is used to limit the amount that will be awarded to any one bidder in an auction ("the 35 percent rule"). This rule ensures that awards are distributed to a number of auction participants.

This goal of broad distribution is intended to encourage participation by a significant number of competitive bidders in each auction. Broad participation keeps borrowing costs to a minimum, helps ensure that Treasury auctions are fair and competitive, and makes it less likely that ownership of Treasury securities will become overly concentrated. A bidder in an auction must report its NLP if, in the security being auctioned, the bidder's NLP plus its bids in the auction meet or exceed a certain dollar-amount threshold as stated in the security's offering announcement. The NLP reporting threshold currently is $1 billion for Treasury bills and $2 billion for Treasury notes. In addition, if the sum of a bidder's bids equals or exceeds the NLP reporting threshold, but the bidder has no position or has a net short position; it must report an NLP of zero. A bidder must determine its NLP as of one-half hour prior to the deadline for receipt of competitive bids. If a bidder meets or exceeds the reporting threshold as of the NLP determination time in the auction offering announcement, the bidder must report its NLP prior to the competitive bidding deadline.

The NLP is generally the amount of the security being auctioned that a bidder has obtained, or has arranged to obtain, outside of the auction in the secondary market. The components of the NLP are intended to capture the various ways that a bidder can acquire a Treasury security.

The term 'net long' refers to the extent to which an investor has bought (or has agreed to buy) more of a security than it has sold (or has agreed to sell). For example, if an investor has bought $900 million of a security in the when-issued market, and it has sold $300 million of the same security in the when-issued market, it has a net long position of $600 million in that security, assuming it has no other positions.

Price and Interest
The price and interest rate of a Bond are determined at auction. The price may be greater than, less than, or equal to the Bond's par amount (or face value).

The price of a fixed rate security depends on its yield to maturity and the interest rate. If the yield to maturity (YTM) is greater than the interest rate, the price will be less than par value; if the YTM is equal to the interest rate, the price will be equal to par; if the YTM is less than the interest rate, the price will be greater than par.

Here are some hypothetical examples of these conditions:

Sometimes when you buy a Bond, you are charged accrued interest, which is the interest the security earned in the current semiannual interest period before you took possession of the security. If you are charged accrued interest, it is paid back to you as part of your next semiannual interest payment.

For example, you buy a 30-Year Treasury Bond issued February 15, 2006 and maturing February 15, 2036. If February 15, 2006 fell on a Saturday, Treasury would issue the Bond on the next business day, Monday February 17, 2006. Besides the purchase price, you would pay for the interest accrued from February 15 to February 17, 2006. When you get the first semiannual interest payment, it will include the accrued interest you paid.

If you buy from a bank or broker, the accrued interest will be credited to your account generally the day it is received.
Bonds pay interest every six months.

Auction Pattern
30-year Bond -- February, *August
*Reopenings. In a reopening, an additional amount of a previously issued security is sold. The reopened security has the same maturity date and interest rate as the original security. However, as compared to the original security, the reopened security has a different issue date and usually a different purchase price.

Tax Considerations
Treasury bonds pay interest every six months. This interest is exempt from state and local income taxes.

December 31 Interest
When interest income on a bond is scheduled to be paid on December 31 and that date isn't a business day, the income is reported as being earned on the first federal banking day of the following year.

Converting Paper Treasury Bonds to Electronic
Bonds exist in either of two formats: as paper certificates (these are older bonds) or as electronic entries in accounts. Paper bonds can be converted to electronic form (see instructions below).

- Call the Treasury at 304-480-7537

- Write to:
Definitives Section
Bureau of the Public Debt
P.O. Box 426
Parkersburg, WV 26106-0426

Key Facts
- The yield on a bond is determined at auction.
- Bonds are sold in increments of $1,000. The minimum purchase is $1,000.
- You can hold a Treasury bond until it matures or sell it before it matures.
- Treasury bonds are issued in electronic form, not paper.
- In a single auction, an investor can buy up to $5 million in bonds by non-competitive bidding or up to 35% of the initial offering amount by competitive bidding.