A Field Guide to U.S. Treasury Securities

The U.S. government borrows a great deal of money, and over the years it has developed a lot of mechanisms for doing so.

Bills. Notes. Bonds. TIPS. FRNs. I Bonds. EE Bonds. Every one of them is a way of lending money to a borrower. The differences between them amount to the term, the way interest gets calculated, and whether you can sell it to somebody else afterwards.

Every one of them is also issued directly by the U.S. Department of the Treasury. Municipal bonds come from state and local governments, and most agency securities carry no federal guarantee at all. Neither is Treasury debt, and neither is covered here.

The good news is that the names and the approaches mostly make intuitive sense. Mostly.

The Big Split: Marketable Securities and Savings Bonds

There are various ways to slice, dice, and sort Treasury debt, but one of these splits is based on whether the debt is marketable or not.

Marketable Treasury securities can be transferred and sold before they mature. There is a deep, continuously trading secondary market for them, which is a large part of why Treasuries function as the reference point for so much of the rest of finance. Bills, notes, bonds, TIPS, and FRNs all live here.

U.S. savings bonds are registered to a specific owner and cannot be traded at all. You buy them from Treasury and you redeem them with Treasury. There is no market price and no secondary market. These are Series I and Series EE bonds.

That distinction explains one of the key behavioral differences between the two families. Here is the whole list of these securities:

Security	Typical maturity	How interest works	Marketable?
Treasury bills	4 to 52 weeks	Bought below face value; face value paid at maturity	Yes
Treasury notes	2, 3, 5, 7, or 10 years	Fixed rate, paid every six months	Yes
Treasury bonds	20 or 30 years	Fixed rate, paid every six months	Yes
TIPS	5, 10, or 30 years	Fixed rate applied to inflation-adjusted principal, paid every six months	Yes
Floating rate notes	2 years	Resets with 13-week bill rates, paid quarterly	Yes
Series I savings bonds	Earns for up to 30 years	Fixed rate plus an inflation rate; interest accrues	No
Series EE savings bonds	Earns for up to 30 years	Fixed rate accrues; current electronic bonds guaranteed to double at 20 years	No

Now let us meet them individually.

Treasury Bills: Short, Simple, No Coupon

Treasury bills, universally called T-bills, are the shortest marketable Treasury securities. Regular maturities run from 4 weeks out to 52 weeks.

Bills are distinct because they pay no periodic interest at all. You buy one for less than its face value and receive the full face value at maturity. The gap between the two is your return.

Suppose you pay $980 for a 52-week bill with a $1,000 face value. A year later Treasury pays you $1,000. Your $20 of interest was baked into the purchase price rather than arriving as a payment.

Because their terms are so short, bills barely react to interest rate changes. There is not enough time left until they mature for a rate move to do much damage to the price. That makes them the standard tool for parking cash, and it is why "risk-free rate" in a finance textbook usually means a short T-bill.

Treasury Notes: The Middle of the Road

Treasury notes, or T-notes, mature in 2, 3, 5, 7, or 10 years. They pay a fixed rate every six months and return face value at maturity, which is the classic bond structure most people picture.

When the financial press refers to "the 10-year Treasury," it means the 10-year note. It's this instrument, plain and simple.

The 10-year gets disproportionate attention because it has become the reference rate for an enormous amount of long-term borrowing. Mortgage rates track it more closely than they track anything the Federal Reserve directly sets. Corporate borrowing costs are frequently quoted as a spread over it. When commentators talk about "the market's view" on growth and inflation over the coming decade, the 10-year yield is usually the thing they are pointing at.

Treasury Bonds: Same Machinery, Longer Wait

In official Treasury vocabulary, Treasury bonds, or T-bonds, are the 20-year and 30-year securities.

In most ways they are identical to notes: fixed rate, paid semiannually, principal at maturity. The only difference is how long you wait.

A 30-year Treasury is backed by exactly the same government as a 4-week bill. It is also vastly more volatile. Credit risk and price risk are separate things, and the long end of the Treasury curve is the clearest demonstration of that anywhere in finance.

In casual use, "Treasury bonds" often means all Treasury securities. Technically a Treasury bond is the 20- or 30-year variety, but even when people know the difference they tend to use the phrase as a shorthand for all Treasury debt.

TIPS: Treasuries With an Inflation Adjustment

Treasury Inflation-Protected Securities, mercifully shortened to TIPS, come in 5-, 10-, and 30-year maturities.

The mechanism is different from every other security here. The coupon rate is fixed, but the principal it applies to moves with the Consumer Price Index. When inflation runs, the principal is adjusted upward, and because the fixed rate is applied to a larger principal, the dollar payment grows too. In deflation the adjustment runs the other way.

Say you hold $1,000 of TIPS with a 1% fixed rate. In a quiet year, that is $5 every six months. Now put 3% inflation through it. The principal adjusts to roughly $1,030, and the same 1% rate produces about $5.15 per payment instead. The rate didn't change, but the base it applies to did.

At maturity, Treasury pays the greater of the inflation-adjusted principal or the original principal. That floor protects you against ending up with less than you started with in nominal terms, even after a stretch of deflation.

TIPS are frequently described as safe, although this can be another example of the phrase "There's no such thing as a free lunch." TIPS do protect purchasing power if held to maturity. Before maturity though their prices move with real interest rates, and real rates can move sharply. As a recent example, TIPS funds fell hard in 2022 despite it being the highest-inflation year in decades, which surprised a lot of people who had bought them specifically as inflation insurance.

Floating Rate Notes: Variable Rate Coupons

Floating rate notes, or FRNs, mature in two years and pay interest quarterly. They are the newest member of the family and not as well-known.

The rate resets with the 13-week bill rate, plus a fixed spread set when the FRN is first auctioned. This means that as short-term rates move, the payments move with them.

This is attractive to investors because a fixed-rate security loses value when rates rise, since its payments are set. An FRN's payments are not fixed in place, so the price has much less reason to fall. It gives you roughly the interest-rate behavior of a short bill with the convenience of a two-year holding.

Since the spread is fixed even though the base rate is not, the market can reprice that spread and therefore the return.

Series I Savings Bonds: Inflation Protection for Individuals

Series I savings bonds, or I Bonds, are non-marketable. Their rate combines two pieces:

A fixed rate that stays with the bond for its entire life.
An inflation rate that Treasury resets twice a year based on CPI.

Together these produce a composite rate that changes every six months, on a schedule keyed to your bond's issue date rather than to the calendar. Two people holding I Bonds bought months apart can be earning quite different rates on the same day.

Interest accrues into the bond's value rather than being paid out. An I Bond earns for up to 30 years.

The liquidity rules are strict and worth knowing before you buy:

You cannot redeem at all in the first 12 months. No exceptions for changing your mind.
Redeem between one and five years and you forfeit the previous three months of interest.
After five years, no penalty.

The effect of the lockup and the cap is that I Bonds have no market price. They cannot fall in value. While a marketable Treasury might see fluctuations in its market price, an I Bond simply accrues. For a lot of savers that is the behavior they are looking for.

Series EE Savings Bonds: Fixed Rate, Long Game

Series EE savings bonds are also non-marketable and also earn for up to 30 years, with the same redemption rules as I Bonds: locked for a year, three-month interest penalty before five years.

Electronic EE Bonds earn a fixed rate, and rates on them are usually unremarkable. Where it gets interesting is that the Treasury commits that a currently issued electronic EE Bond will be worth double its purchase price at the 20-year mark, making a one-time adjustment then if the stated rate has not already got there.

How Treasuries Reach Investors

Marketable Treasuries begin life at an auction. You can participate through TreasuryDirect or through eligible banks, brokers, and dealers, and there are two ways to bid.

A noncompetitive bid means you accept whatever yield the auction produces. You are guaranteed to get the amount you asked for. This is the sensible route for just about every individual, and the limit is $10 million per auction.

A competitive bid means you specify the yield, discount rate, or discount margin you will accept. You might be filled completely, partially, or not at all. This is institutional territory, where the professionals are trading the market and a decimal point makes a big difference in their strategy.

After issuance, marketable securities trade in the secondary market, and their prices move with interest rates, inflation expectations, supply and demand, and time remaining. This market is enormous and trades around the clock, which is why Treasuries can generally be sold in size without moving the price much. That liquidity is a major feature of the product.

Savings bonds do none of this. They are bought from Treasury and redeemed with Treasury, on Treasury's rules, and never change hands in between.

Terms That Are Easy to Mix Up

Face value, par value, principal: Three names for the amount Treasury repays at maturity. For TIPS, it moves with inflation.

Coupon rate: The stated annual interest rate. Applied to principal, it determines the payment.

Price: What the security costs right now. A marketable Treasury can trade above par, below par, or at par.

Yield: The return implied by the current price and the remaining cash flows. Price and yield move in opposite directions, always.

Maturity: The date the term ends and principal comes due.

Duration: An estimate of price sensitivity to rate changes. Related to maturity, but not the same number and frequently quite different.

Reopening: An additional auction of a security that already exists. Same maturity date and same coupon as the original issue, but sold at whatever price the new auction produces.

Nominal yield: A yield not adjusted for inflation.

Real yield: A yield after accounting for inflation. TIPS yields are quoted as real yields.

Yield curve, the curve, the Treasury curve: Three names for the same picture. Treasury yields plotted across maturities, from 4 weeks to 30 years. It shows what the market charges the same borrower for different lengths of time, and its shape is one of the most watched indicators in finance.

Are Treasuries Risk-Free?

Treasuries carry about as little credit risk as any financial instrument on earth. The chance of the U.S. Treasury not having the money to deliver on their promises is effectively zero, but there are plenty of other risks.

Interest-rate risk. Marketable Treasury prices fall when rates rise, and long-dated securities can fall a great deal. Anyone who held 30-year Treasuries through 2022 can confirm that a government guarantee and a stable price are unrelated concepts.

Inflation risk. A fixed payment stream loses purchasing power when inflation runs. TIPS and I Bonds address this from different angles, and their consideration of inflation isn't always complete.

Reinvestment risk. Bills mature constantly and coupons keep arriving, and all of it has to be reinvested at whatever rate exists then. A ladder of short bills is wonderful when rates are high and considerably less so a year after they fall.

Liquidity restrictions. Savings bonds cannot be touched for 12 months and carry a penalty for four years after that. Marketable Treasuries can be sold any time, at whatever the price happens to be.

Tax treatment. Treasury interest is subject to federal income tax and exempt from state and local income tax. That exemption is worth real money in a high-tax state and is routinely left out of yield comparisons against bank deposits.

Government-backed does not mean price-stable, inflation-proof, or convenient. It merely means that the government promises to deliver on their commitments.

Common Misconceptions

"Treasury bonds and Treasuries are the same thing." A Treasury bond is specifically the 20- or 30-year security. Treasuries is the whole family.

"Treasuries can't lose money." They can lose a lot of money, quickly, if you sell before maturity after rates have risen. What you are guaranteed is the payments, on schedule, if you hold to the end.

"TIPS go up when inflation goes up." Their principal does. Their market price follows real rates, which can fall sharply during inflation. 2022 demonstrated this uncomfortably.

"I Bonds are a good place for an emergency fund." Not in year one, when you cannot redeem them at all, and not really in years two through five with the interest penalty attached.

"Longer maturity means more risk of not being repaid." It means more price volatility. The credit backing is identical across every security in this post.

The Bottom Line

U.S. Treasury debt is offered various ways. It is a collection of financial products from a single borrower, differing in term, in how interest is calculated, and in whether you can sell them.

Bills cover the short end with no coupon (or interest payment) at all. Notes and bonds pay fixed interest across longer terms and can take on real price volatility. TIPS move their principal with inflation. FRNs move their coupon with short rates. I Bonds and EE Bonds don't have a market price since they can only be redeemed with the government by whoever bought them.

Four questions to separate them:

How long until the money is due?
How is the interest calculated, and when does it arrive?
Can it be sold before maturity, and what happens to the price if rates move?
What risks remain even with a government guarantee?

Answer those and the alphabet soup starts looking more like a complete menu.

Additional Information

Everything below is from the Treasury itself or from a regulator.

Treasury marketable securities (TreasuryDirect). The issuer's own overview of bills, notes, bonds, TIPS, and FRNs, with current terms for each.
Treasury bills in depth (TreasuryDirect). Includes the auction schedule and the discount-versus-investment-rate distinction that the aside above skims.
TIPS (TreasuryDirect). The full mechanics of the index ratio and the deflation floor, which are more involved than the summary here.
Savings bonds (TreasuryDirect). Current I Bond and EE Bond rates, purchase limits, and the redemption rules. The rates change twice a year, so this is the page to check rather than any article.
How Treasury auctions work (TreasuryDirect). Upcoming auction dates and the bidding process, if you want to buy at issue rather than through a broker.
Daily Treasury par yield curve rates (U.S. Treasury). The actual yield curve, updated every business day. Worth bookmarking.
Interest rate risk: when rates go up, prices go down (SEC). The regulator's explanation of the mechanism behind the risk section, in more detail.
Understanding the national debt (Fiscal Data). For the topic this post deliberately left out, with the actual current figures.