Treasury Makes Buying Its Securities Easier

In a continuing effort to make government bonds more attractive to individual investors, the Treasury Department said Thursday that it has added several features to its Treasury Direct program that allows individuals to buy debt securities from the government without going through a broker.

About 825,000 Americans already participate in the program, which will now offer three new features: Pay Direct, an automatic debit option that allows investors to buy Treasury securities without sending a check; Reinvest Direct, which allows investors to reinvest maturing securities over the phone; and Sell Direct, which for the first time allows direct investors to sell their securities before maturity without enlisting the aid of a broker.

“These changes go a long way toward making the program more user-friendly,” said Undersecretary of the Treasury John D. Hawke Jr.

In addition, the government is streamlining its Treasury Direct forms by creating a single application that can be used to purchase any Treasury security, whether it is a short-term T-bill or a long-term bond. The form is also available on the Treasury’s Web site (https://www.publicdebt.treas.gov).

Hawke predicted that the changes, which went into effect Thursday, will boost usage of Treasury Direct by eliminating some of the hurdles investors faced when they wanted to use the otherwise highly economical program. Bonds can be purchased through a brokerage, but individuals pay a commission that is rarely spelled out as such but is reflected in a lower yield to maturity.

Hawke said he doesn’t expect to see any significant shift in ownership of government IOUs. Individual consumers who buy government securities through the Treasury Direct program account for a tiny fraction of all Treasury securities purchased and outstanding, he said, and that is likely to remain the case.

What hurdles did Treasury Direct investors face in the past, and how did that change?

Those who wanted to buy Treasury bills--government debt with maturities ranging from 13 weeks to one year--previously had to purchase them with either a cashier’s or certified check. Because personal checks are not accepted, individuals who felt uncomfortable sending cashier’s checks in the mail had to go to a Federal Reserve Bank branch to buy T-bills. Now investors can simply fill out a form that includes bank account information and an authorization to purchase a particular security at the going market price. The Treasury will then debit the buyer’s bank account for the appropriate amount on the auction date.

A past disadvantage of buying Treasuries direct was the cumbersome process of selling if you needed to cash out before the bond matured. Generally, if an investor needed to sell a Treasury purchased through the program, he or she would set up an account at a bank or brokerage, then fill out a form and mail it to the Treasury, said Peter Hollenbach, a spokesman for the Bureau of Public Debt. The Treasury would then transfer the security into the consumer’s account. The broker could then take possession and sell.

Now, the seller can fill out a form and forward it to the Chicago Federal Reserve Bank, which will serve as the Treasury’s sales agent. The Chicago Fed will get quotes from three dealers and sell to the one that offers the best price. Proceeds from the sale will be automatically credited to the seller’s bank account, minus a $34 fee.

(The $34 is the first transaction fee ever imposed in the Treasury Direct program, Hollenbach said. However, two years ago the Treasury began to impose an annual account fee of $25 on accounts holding more than $100,000 in face value of Treasury securities. Both fees were necessary to recoup costs of operating the program, he said.)

To ease the process of reinvesting, the government now gives investors a phone-in option. Shortly before their Treasury securities mature, investors will receive a notice. To reinvest, they can call a toll-free phone number ([800] 943-6864) from a touch-tone phone and follow the recorded instructions.

The Treasury plans to add more consumer-oriented features, eventually including the ability to buy and sell Treasury securities entirely via the Internet, Hawke said.

Investors who want more information about the Treasury auction schedule or Treasury Direct can visit the Web site or obtain a brochure titled “Direct to You” at a local Federal Reserve bank.

Kathy M. Kristof is a syndicated financial columnist and author of “Kathy Kristof’s Complete Book of Dollars and Sense.” She welcomes comments and suggestions but regrets she cannot respond personally to every inquiry. To contact her, write Kathy M. Kristof, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or e-mail [email protected]