U.S. Treasuries: Bills, Notes, Bonds

U.S. Treasuries Treasury Bills are short-term debt obligations backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks) or six months (26 weeks).

If you were to buy a 13-week T-bill priced at $9,800, the U.S. government is essentially writing you an IOU for $10,000 whereby it agrees to pay you this larger sum in three months. This becomes a present value/future value calculation. You will not receive regular payments as you would with a coupon bond, as you will not be receiving interest checks in the mail. Instead, the appreciation - and therefore, the value to you, comes from the difference between the discounted value you originally paid (the present value), and the larger sum you receive back ($10,000 or the future value). In this case, the T-bill pays a 2.04% interest rate ($200/$9,800 = 2.04%) over a three-month period.

Treasury Notes are a marketable U.S. government debt security with a fixed interest rate and a maturity between one and 10 years. Treasury notes can be bought directly from the U.S. government or through a bank.

Treasury notes are popular investments across the world, as there is a large secondary market making them highly liquid. As opposed to T-bills, interest payments on treasury notes are made every six months until maturity, so if you buy T-notes, you will be receiving semi-annual interest payments in your mailbox. Your semi-annual interest payments are not taxable on a municipal or state level, but they are taxed at the federal level.

Treasury Bonds are a marketable fixed-interest U.S. government debt security with a maturity of 10 years or more. Treasury bonds also make interest payments semi-annually to the bond-holder, and the income that the holder receives is taxed only at the federal level.

Treasury bonds come in minimum denominations of $1,000. The bonds are initially sold through auction in which the maximum purchase amount is $5 million. 

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.