Treasury Bill, Note, Bond

A treasury bill, note, and bond are three categories of US government debt securities distinguished by maturity—bills are short-term (< 1 year), notes are intermediate (2–10 years), and bonds are long-term (20+ years)—with differing yield curves and risk profiles.

Treasury Bills (short-term)

A Treasury Bill (T-Bill) is a short-term government security with maturity under one year. Standard maturities are 4, 13, 26, and 52 weeks (roughly 1 month, 3 months, 6 months, and 1 year). T-Bills are sold at a discount—there is no coupon payment. An investor buying a 52-week T-Bill for $98 receives $100 at maturity, earning $2 in implicit interest.

The Treasury auctions T-Bills weekly, making them the most frequently traded government security. Because of their short maturity, T-Bills carry minimal interest-rate risk. A 1% move in Treasury yields changes a T-Bill’s price by <0.5%, compared to 10%+ for a 10-year Treasury.

T-Bills are used as a proxy for the “risk-free rate” in finance models and pricing. They are the collateral of choice for repurchase-agreements and serve as the benchmark for money-market-fund yields. During crises, demand for T-Bills surges as investors flee risk, driving yields toward zero.

Treasury Notes (intermediate-term)

A Treasury Note (T-Note) is an intermediate-term security with maturity of 2 to 10 years. The most commonly traded are 2-year, 5-year, and 10-year notes. Notes carry semi-annual coupon payments, typically 2%–6% depending on market yields at issuance. The 10-year note is the most actively traded security globally and serves as the benchmark for long-term US borrowing costs.

Notes combine moderate interest-rate risk with reasonable cash flows. A 5-year note losing 3% of value from a 1% rate rise is material but manageable for a portfolio. Notes are the workhorse of bond-etf portfolios, mutual funds, and pension fund holdings.

The yield-curve typically slopes upward, with 10-year notes yielding 1–3% more than 2-year notes. This upward slope compensates investors for the extra duration risk of holding notes longer. During recessions, the curve flattens or inverts (2-year yields exceed 10-year), a reliable recession signal.

Treasury Bonds (long-term)

A Treasury Bond (T-Bond) is a long-term security with maturity of 20 or 30 years. Like notes, they pay semi-annual coupons. Because they are long-duration instruments, they are highly sensitive to interest-rate moves. A 1% rate rise can reduce a 30-year bond’s value by 20%–25%. This duration risk is compensated by higher yields—30-year bonds typically yield 1–2% more than 10-year notes.

Long-dated bonds are primarily held by liability-driven investors: pension funds matching decades-long obligations, life insurers funding very-long-duration liabilities, and endowments. Retail investors rarely hold 30-year bonds directly; most exposure is through bond-etf or mutual funds.

The 30-year bond market is relatively thin compared to the 10-year note market, so price spreads can be wider and volatility higher. During periods of quantitative-easing (when the Federal Reserve buys bonds), the long end is often the first target, creating outsized price moves.

The yield curve and maturity premiums

The relationship between bill, note, and bond yields reflects the yield-curve and term-premium. In normal times:

• 3-month T-Bill: 4.5%
• 2-year T-Note: 4.8%
• 10-year T-Note: 5.2%
• 30-year T-Bond: 5.5%

The upward slope reflects:

1. Inflation expectations — Longer maturities carry higher inflation risk.
2. Term premium — Investors demand extra yield for duration risk.
3. Supply and demand — Long bonds are in lower natural demand, so yields rise.

During crisis periods or when Fed rate cuts are expected, the curve can flatten (2-year and 10-year converge) or even invert (short rates above long rates), a sign of economic pessimism.

Auctions and issuance

The US Treasury auctions securities on a regular schedule:

• T-Bills: Auctioned weekly
• 2-, 3-, 5-, 7-year notes: Auctioned monthly
• 10-year note: Auctioned monthly
• 30-year bond: Auctioned every 6 months

Auction demand reflects investor sentiment and expected Federal Reserve policy. A “strong” auction (high demand, bids exceed supply) usually signals confidence in the security and often pushes prices higher. A “weak” auction (low demand) can trigger a sell-off as it suggests investors are concerned about returns.

Investment considerations

Credit risk. All three carry zero credit risk (backed by the full faith and credit of the US government). The only risk is interest-rate risk (price change if rates shift).

Liquidity. T-Bills and 10-year notes are highly liquid; bid-ask spreads are tight. 30-year bonds are less liquid; spreads can be 5–10 basis points wider, meaningful for large trades.

Tax treatment. Treasury securities are exempt from state and local taxes but subject to federal income tax. For high-income investors in high-tax states, the after-tax yield of Treasuries is sometimes lower than a municipal-bond alternative, despite nominally higher stated yields.

Duration and convexity. Bills have near-zero duration; 30-year bonds have duration of ~18 years. Investors managing interest-rate exposure choose maturity buckets based on their rate outlook and liability matching.