Treasury Notes vs Bonds (2024)

FAQs

Treasury Notes vs Bonds? ›

Treasury bonds typically mature in 20 or 30 years and offer the highest coupons or interest, which are paid twice yearly. Treasury notes mature from two to 10 years, with semiannual interest payments but usually lower yields than T-bonds.

Key Takeaways

Bonds typically mature in 20-30 years and offer investors the highest interest payments to maturity. T-notes mature between two and 10 years, with semiannual interest payments, while T-bills have the shortest maturity terms—from four weeks to a year.

Traditional bonds are generally considered safer investments compared to structured notes. Bonds issued by solid governments or companies with high credit ratings have a lower default risk. However, all bonds are subject to interest rate and market risks.

Treasury bills function more like cash in your portfolio and can be a safe harbor during turbulent economic times. Treasury bonds can provide a dependable stream of income, but can suffer a loss of value on secondary markets if interest rates go up.

Being able to buy Treasuries at a discount actually protects you from the risk of losing principal. Although you are still effectively losing a type of value when interest rates go up, you can mitigate that by holding it and then getting paid out with the nominal amount of cash or nominal interest rate.

Choosing between a CD and Treasuries depends on how long of a term you want. For terms of one to six months, as well as 10 years, rates are close enough that Treasuries are the better pick. For terms of one to five years, CDs are currently paying more, and it's a large enough difference to give them the edge.

Notes are relatively short or medium-term securities that mature in 2, 3, 5, 7, or 10 years. Both bonds and notes pay interest every six months. The interest rate for a particular security is set at the auction.

Are Treasury bonds a good investment? Generally, yes, but that depends on your investing goals, your risk tolerance and your portfolio's makeup. With investing, in many cases, the higher the risk, the higher the potential return.

Treasury bonds typically mature in 20 or 30 years and offer the highest coupons or interest, which are paid twice yearly. Treasury notes mature from two to 10 years, with semiannual interest payments but usually lower yields than T-bonds.

We sell Treasury Bills (Bills) for terms ranging from four weeks to 52 weeks. Bills are sold at a discount or at par (face value). When the bill matures, you are paid its face value. You can hold a bill until it matures or sell it before it matures.

What is the downside to buying Treasury bonds? ›

Investing in Treasury bonds comes with some disadvantages as well. Some of the major downsides to Treasury bonds are: Lower yield: You'll typically earn less interest on Treasuries compared with other, riskier securities.

Use the Education Exclusion

You can skip paying taxes on interest earned with Series EE and Series I savings bonds if you're using the money to pay for qualified higher education costs. That includes expenses you pay for yourself, your spouse or a qualified dependent.

The Bottom Line. Treasury bills are taxed at the federal level but not by state and local governments. Many investors use them as a means to preserve capital when there is market turmoil, but they can also be used in other investment strategies. U.S. Internal Revenue Service.

Treasury securities are considered a safe and secure investment option because the full faith and credit of the U.S. government guarantees that interest and principal payments will be paid on time. Also, most Treasury securities are liquid, which means they can easily be sold for cash.

We sell Treasury Notes for a term of 2, 3, 5, 7, or 10 years. Notes pay a fixed rate of interest every six months until they mature. You can hold a note until it matures or sell it before it matures.

For example, you can purchase: $10 million each in 4-, 8-, 13-, 26-, and 52-week Treasury bills, $10 million each in 2-, 3-, 5-, 7-, and 10-year Treasury notes, $10 million in 30-year Treasury bonds, $10 million in 2-year Floating Rate Notes, and $10 million each in 5-, 10-, and 30-year Treasury TIPS.

They are sold at a discount to face value, and the difference between the discounted price and face value is your return on investment. For example, if you buy a 12-week T-bill with a face value of $10,000 for $9,800, the difference of $200 is your return for holding the security for 12 weeks.

Are Treasury bills taxed as capital gains? Normally no. However, if you buy a T-bill in the secondary market and then achieve a profit, you may be liable for capital gains depending on your exact purchase price.

When the bill matures, you are paid its face value. You can hold a bill until it matures or sell it before it matures.