UST: What it is, How it Works, Application

What Is UST?

UST is the abbreviation for the United States Treasury, the federal government division that manages U.S. finances. UST is commonly used to reference debt issued by the United States.

Key Takeaways

• UST is the abbreviation for the United States Treasury, the federal government division that manages U.S. finances
• UST is commonly used to reference debt issued by the United States.
• Organizations under the purview of the UST include the IRS, U.S. Mint, Bureau of Public Debt, Office of the Comptroller of the Currency, and Alcohol and Tobacco Tax Bureau.
• UST securities are presumed to have little to no risk of default.

Understanding UST

The UST issues securities to raise money for the federal government. Some government branches under the UST umbrella include the Internal Revenue Service (IRS), U.S. Mint, Bureau of Public Debt, and Alcohol and Tobacco Tax Bureau. In addition to treasury bills (T-bills), the U.S. Treasury issues notes, bonds, floating-rate notes (FRN), and U.S. Savings Bonds.

Traders use the phrases "UST yields" to refer to Treasury yields or "UST curve" to refer to the Treasury yield curve concerning asset pricing. The U.S. Treasury is responsible for issuing debt in the form of Treasury bonds, bills, and notes.

In addition to marketable securities, there are also non-marketable UST securities. These securities are not transferable and cannot be traded on an exchange. UST savings bonds fall into this group.

The U.S. Department of Treasury manages the money and cash flow for the federal government. It works with the Federal Reserve to develop economic policy.

Formally established in 1789 by the First Session of Congress, the institution came into being before the signing of the Declaration of Independence. Alexander Hamilton was the first Secretary of the Treasury, installed on Sept. 11, 1789.

UST Securities and Asset Pricing

Much of finance is about pricing assets. UST securities are assumed to have virtually no default risk. As a result, these securities are often used as a proxy for a risk-free asset.

UST securities set the benchmark for pricing financial assets. If UST securities are trading at 3%, all other fixed-income securities with the same characteristics will trade at a price higher than 3%. It is assumed that there is no borrower with better credit than the United States.

Measures of risk can be based on metrics such as debt ratios and price volatility. Greater leverage or price volatility leads to a greater risk of either the principal or interest not being paid back. Risk is synonymous with return probabilities as well. Investments that offer the possibility of making greater returns are priced higher, even if that possibility is slim. A higher level of risk associated with an investment means a higher possible return. A downside to owning UST securities is that, due to the lower yield, the interest payments (an investor’s income) will be lower.

Measures of risk can be based on metrics such as debt ratios and price volatility. Greater leverage or price volatility leads to a greater risk of either the principal or interest not being paid back. Risk is synonymous with return probabilities as well. Investments that offer the possibility of making greater returns are priced higher, even if that possibility is slim. A higher level of risk associated with an investment means a higher possible return. A downside to owning UST securities is that, due to the lower yield, the interest payments (an investor’s income) will be lower.