What happens after a Treasury bond is sold
When the U.S. Treasury issues a bond, it is borrowing through a formal, tradable IOU. Buyers submit bids at an auction, and the Treasury receives the proceeds to help pay government expenses when tax revenue and other income are not enough. That gap is the budget deficit; selling bonds finances it rather than making the spending disappear.
In return, the bond sets out when the government will repay the principal—the amount borrowed—and, for a conventional Treasury bond, pays interest along the way. The interest rate and price established at sale determine the bond’s yield, or the return a buyer can expect if the bond is held to maturity.
The loan can change hands
A bond does not have to stay with its first buyer. In the secondary market, investors trade already-issued Treasuries with one another. If you buy one there, your payment goes to the previous owner, not directly into the government’s account. The government still owes the promised payments to whoever holds the bond.
Those resale prices can rise or fall. When newly issued bonds offer higher interest, older bonds with lower payments generally become less attractive and may sell for less. So a Treasury bond is both a loan to the government at issuance and an investment whose market value can shift afterward. At maturity, the holder receives the principal from the Treasury; in the meantime, the bond can be sold or used to provide scheduled income.
