What Is a Treasury Bond? T-Bills, T-Notes, I Bonds, TIPS, and How to Buy

What Are Treasury Securities?

Treasury securities are debt instruments issued by the United States Department of the Treasury to fund government operations and national debt. When you buy a Treasury security, you are lending money to the federal government. In return, you receive regular interest payments (for most Treasury types) and your principal back at maturity. Treasury securities are considered the safest investments in the world because they are backed by the full faith and credit of the US government—which has never defaulted on its debt obligations.

This safety comes with a trade-off: Treasury yields are typically lower than riskier investments like corporate bonds or stocks. However, the reliability of Treasury income, their federal tax advantages (interest is exempt from state and local income taxes), and their liquidity make them essential components of conservative portfolios and institutional reserves worldwide.

Treasury Bills (T-Bills)

Treasury bills are short-term securities with maturities of 4 weeks, 8 weeks, 13 weeks (3 months), 17 weeks, 26 weeks (6 months), and 52 weeks (1 year). T-bills do not pay periodic interest. Instead, they are sold at a discount to face value and redeemed at full face value at maturity. The difference between the purchase price and face value is your return.

For example, you might purchase a 26-week T-bill for $9,750 and receive $10,000 at maturity—a return of $250 over six months. T-bills are extremely liquid; a large secondary market allows you to sell them before maturity if needed. They are popular for short-term cash management because their yields often exceed money market fund rates, particularly when the Fed has raised short-term rates.

Treasury Notes (T-Notes)

Treasury notes have intermediate maturities: 2, 3, 5, 7, and 10 years. Unlike T-bills, T-notes pay semi-annual interest (coupon payments). The interest rate is set at auction and remains fixed for the life of the note. If you purchase a $10,000 T-note with a 4% coupon, you receive $200 every six months and your $10,000 principal at maturity.

The 10-year T-note yield is the most widely watched interest rate in the world—it serves as the benchmark for mortgage rates, corporate borrowing costs, and countless other financial instruments. When the 10-year yield rises, mortgage rates typically follow. When yields fall, existing T-notes with higher coupons become more valuable in the secondary market, creating potential capital gains for bond holders.

Treasury Bonds (T-Bonds)

Treasury bonds are the longest-dated Treasury securities, with 20-year and 30-year maturities. Like T-notes, they pay semi-annual coupons. The long duration makes T-bonds more sensitive to interest rate changes—a 1% rise in yields can cause a 20-year bond to lose roughly 15–18% of its market value. This price sensitivity (measured by duration) makes long-term bonds significantly more volatile than short-term Treasuries, though they typically offer higher yields to compensate.

Long-term bonds are popular among institutional investors like pension funds and insurance companies that have long-dated liabilities to match. Individual investors seeking income may prefer shorter-duration Treasuries to manage interest rate risk.

I Bonds: Inflation-Linked Savings Bonds

Series I savings bonds (I bonds) are a unique Treasury product designed to protect against inflation. Their interest rate has two components: a fixed rate (set at purchase and maintained for the life of the bond) and a variable inflation rate that adjusts every six months based on CPI. In 2022, when inflation spiked, I bond rates reached 9.62%—higher than virtually any other safe investment.

I bonds have specific features and restrictions. They cannot be purchased in secondary markets and must be bought directly from TreasuryDirect.gov. Individuals can purchase up to $10,000 per year (plus an additional $5,000 via tax refund). They must be held for at least one year; redeeming within five years forfeits three months of interest. I bonds are exempt from state and local income taxes and can be federal-tax-exempt when used for qualified education expenses.

TIPS: Treasury Inflation-Protected Securities

TIPS (Treasury Inflation-Protected Securities) are marketable Treasury securities whose principal adjusts with inflation as measured by CPI. As inflation rises, the principal increases; as deflation occurs, it decreases (but never below the original principal at maturity). The fixed coupon rate is applied to the adjusted principal, so interest payments also rise with inflation.

TIPS are available in 5-, 10-, and 30-year maturities and can be purchased at auction through TreasuryDirect or in the secondary market through a brokerage. TIPS ETFs like TIP (iShares TIPS Bond) or SCHP (Schwab U.S. TIPS) offer easy access to a diversified portfolio of TIPS. In taxable accounts, TIPS have a quirk: the phantom income problem—you owe taxes on principal adjustments in the year they occur, even though you don't receive that cash until maturity. For this reason, TIPS are generally better held in tax-advantaged accounts.

The Yield Curve

The yield curve plots Treasury yields across all maturities—from 4-week T-bills to 30-year bonds. Normally, the curve slopes upward: longer maturities offer higher yields to compensate investors for greater time risk and inflation uncertainty. This normal upward-sloping curve signals a healthy economy. An inverted yield curve—where short-term rates exceed long-term rates—is a historically reliable recession predictor, as it reflects expectations of future rate cuts due to economic weakness. A flat yield curve signals economic transition. Monitoring the yield curve provides valuable context for economic conditions and investment positioning.