It\'s interesting to note that Americans don\'t own the majority of Treasury bon

Question

It's interesting to note that Americans don't own the majority of Treasury bonds. Foreign banks and countries own more U.S. debt than we do.

What is also interesting, is that the Federal Reserve has been purchasing Treasury securities a lot since the recession of 2007-08. The Fed's balance sheet has exploded to over four times its pre-recession total. It now stands at over $4 trillion - that's with a capital T.

QUESTION FOR EVERYONE: So what happens when the Fed buys Treasuries? And what happens when the existing bonds they own come to maturity?

This is a DQ post, please be specfic in your answer....

Explanation / Answer

Foreign banks and countries own more US treasury bonds than the banks in the country. Fed buys Treasuries to increase liquidity in the system. Over the last many years, Fed has been using Quantitative Easing to increase the rate of inflation and to make more money available to the Government and banks. Other countries invest in these bonds as an investment. As the interest rate on these increases more Governments invest in these bonds. US bonds are considered a safe investment.

When the treasuries the Fed buys come to maturity, the buyer of the bond gets the returns in the form of investment and interest on the investment. The term of investment decides on the returns; in case of treasury bills wherein it is less than 13 weeks the bond is bought at a discount and the principal gives the return as the price at which the bond is bought and the yield. The yield depends on numerous factors.

In case of treasury bonds with 10 to 30 years of maturity, one gets the interest on investment semi-annually at the coupon rate; these are not callable. These are bought through an auction and traded in secondary markets. The return on investment at the time of maturity depends on the yield; which can be calculated using the face value, cash flows, and, payments every six months.

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