What are US Treasuries?

A US Treasury security (Treasury) is a government debt security issued and backed by the full faith and credit of the US government, including Treasury bills, notes, bonds, floating-rate notes, Treasury inflation-protected securities (TIPS) and savings bonds.  The US Treasury Department is the world’s largest single issuer of debt.  Treasuries are viewed as the safest of all US dollar-denominated debt securities, are the most actively traded and serve as the interest-rate (yield) benchmark for their respective maturities.  All Treasury securities are issued in book-entry (electronic) form – not as paper certificates.

A US Treasury bill (T-bill) is a straight discount marketable debt obligation issued and backed by the US government in book-entry form with maturities of 4, 13, 26 and 52 weeks in amounts of $100 and multiples of $100 thereafter.  T-bills are the most popular US money market instrument because they are virtually free from default risk, have limited  interest-rate and price risk, and are highly liquid.  The US T-bill market is larger than all other t-bill markets combined.

A Treasury note (T-note) is a semiannual coupon-bearing instruments issued by the US Treasury with a maturity of two, three, five, seven or ten years in denominations ranging from $100 to $1 million or more, depending on the issue’s maturity.  2-year, 3-year, 5-year and 7-year notes are auctioned every month; 10-year notes are auctioned quarterly at original issue and in reopenings.  T-notes pay a fixed rate of interest every six months (semiannually) until maturity.  Treasury floating rate notes (TFRNs) are issued by the US Treasury with a term of two years in increments of $100 with repricing based on the respective 13-week T-bill.  T-notes are also issued as TIPS and can be used for STRIPS.

Treasury bonds (T-bonds) are semiannual coupon-bearing, long-term instruments issued by the US Treasury with maturities of greater than ten years and up to 30 years, in denominations of $100 and up to $5 million in noncompetitive bidding.  The longest-dated T-bond is considered the principal bellwether for long-term US interest rates.  Treasury bonds are auctioned at original issue and in reopenings, in which additional amounts of a previously issued security is auctioned – the reopened securities have the same maturity and interest rate as the original securities but a different issue date and usually a different price.  As with T-notes, T-bonds are also issued as TIPS and can be used in the Treasury’s STRIPS program.

While the interest income on Treasuries is exempt from US state and local income taxes, it is subject to US Federal income tax.  It is the high quality of US treasuries, rather than their after-tax yield, that attracts most investors.