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Listener Julia Boomer asks from Santa Fe, New Mexico asks: 

I have always wondered how Treasury bonds work. For example, when and how (through what arena) are they issued and how do you find out at what interest they are issued? 

Investors like Treasury bills, notes and bonds because they’re backed by the U.S. government, which means they have no default risk.The maturity date on a security can range from just a few days to 30 years. 

Treasury bonds are 20-year and 30-year investments that pay interest every six months until maturity.

Beyond serving as a safe investment vehicle, bonds can also tell us what the future might hold for the economy. 

Here’s a primer on the different ways to buy bonds, and what the market for them can tell us.

Where can you buy bonds?

There are two main places you can purchase Treasury bonds: one of them is TreasuryDirect.gov.

“Anyone can sign up on TreasuryDirect and form their own account, and that will allow them to buy Treasury bonds as they’re auctioned off,” said Roger Tutterow, an economics professor at Kennesaw State University. 

You can also buy bonds at a brokerage firm (think Fidelity, Vanguard, Charles Schwab). At a brokerage, you can sell bonds before maturity and hold them in an IRA or a retirement account, which you can’t if you buy them through TreasuryDirect, said banking expert Ken Tumin.

How do auctions work? 

TreasuryDirect holds regular auctions where you can buy Treasury bills, notes and bonds, and publishes a list showing when these auctions will take place. 

The Treasury Department’s website lists the yields for all Treasury securities at the end of the day. These provide an estimate of what yield you might get come auction time, Tumin said. 

But you won’t know the exact yield you’ll get when you’re buying them until after the auction is over. That’s because supply and demand play a large role, Tumin said. 

“If there’s more supply than the demand, the yields might end up being less than what you expected,” Tumin said.

What do changes in Treasury yields indicate about the economy?

Once Treasuries have been auctioned off through the primary market, they’ll continue to trade on the secondary market for the life of the bond.

Expectations about inflation, future economic growth and how much the Treasury might need to borrow in the future play a role in whether yields go up or down in a given day or a given week, Tutterow said. 

When Treasury yields start falling, which is what happened right before the COVID-19 pandemic began, that’s a sign that people are worried about a recession and that unemployment is high, Tumin said.

In February 2020, both the 10-year Treasury note and 30-year Treasury bond had reached record lows. 

If inflation has been elevated and it’s expected to stay high for longer, bond yields will rise.

“Investors will demand to be compensated for the diminished buying power due to inflation,” Tutterow said. 

Presidential politics can influence expectations about inflation. For example, yields on the 10-year Treasury note jumped in late June after the presidential debate between Donald Trump and Joe Biden. That’s because the odds of Trump winning rose, and a Trump administration could mean more tariffs. More tariffs could mean greater inflation.

Bond behavior can sometimes predict the future, but it’s not always accurate. An inverted yield curve can indicate a recession. However, we haven’t entered one (yet), even though the yield curve has been inverted for a while now. An inverted yield curve means that the interest paid by 10-year Treasury note is lower than shorter-term debt, like 2-year Treasurys.

Bonds have started to look more attractive in recent weeks. After the major stock indexes tumbled last week, investors became interested in bonds as a hedge against market volatility. 

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