Treasury Bond Shopping Made Easy

As the safest investment in the world, U.S. government securities have always been popular with individual investors. Even though their yields have fallen to a mere 5.25% for 30-year bonds and around 4.5% for maturities of three months to five years, recent stock market volatility has only whetted the appetite for Treasury debt.

With demand for Treasuries rising, it's good news that the government has made several improvements to its Treasury Direct program. Treasury Direct allows you to buy T-bills, notes, and bonds directly from the government without paying extra fees of $50 or $60 per transaction to a bond dealer or broker. The agency also cut the required minimum purchase to $1,000 for T-bills--debt with maturities of one year or less--and two-year notes from $10,000 and $5,000, respectively.

But the biggest change to the 12-year-old Treasury Direct program, which maintains 800,000 accounts holding $85 billion in assets, has come about thanks to increased automation. Buy Direct, an electronic service launched this fall, allows current account holders to purchase securities by a toll-free phone number (800 943-6864) or via the Bureau of the Public Debt Web site (table). The government deducts the price of the securities from the checking or savings account you designate at your bank. Prior to the phone and Web services, you had to mail in order forms for specific securities, along with a check for the purchase price.

You can also check account balances, reinvest maturing securities, and request tax information, such as a duplicate 1099, online and by phone. True, you still need to mail in a form to your local Federal Reserve Bank to open a Treasury Direct account. But you can download an application and find out the bank's mailing address on the Web.

FEE ADVANTAGE. Buy Direct is the counterpoint to Sell Direct, which the Treasury set up last year to make it easier to sell securities. Before Sell Direct, customers needed to transfer bonds to a dealer or bank so they could be sold in the secondary market. Now, the Federal Reserve Bank of Chicago will handle sales for $34 per security. (The only other fee in Treasury Direct is a $25-a-year charge for accounts larger than $100,000.) You need to send in a signed form which you can download off the Internet. Even though the government will sell your bonds for you, active traders will probably get faster service from a broker. Treasury Direct is really intended for investors who plan to buy and hold to maturity, says Peter Hollenbach, spokesman for the Bureau of the Public Debt.

Buying Treasuries through a U.S. government securities mutual fund can be even more convenient than picking them up from the government. A fund provides professional management, diversification, and monthly income, without you having to go through the trouble of laddering the portfolio yourself to get income payments every month or quarter. The downside of funds is that they expose you to market risk, unlike Treasuries, which have a stated maturity date on which you'll get the principal back. Still, for investors who like to own Treasury securities outright, the government has picked an opportune time to simplify the buying process.