Treasury Bills, Notes and Bonds

US Treasury securities are debt issued by the US federal government to fund its operations. They are considered among the safest assets in the world because they are backed by the full faith and credit of the US government, and the Treasury market is the deepest and most liquid bond market globally. Treasury yields serve as the benchmark "risk free" rates for pricing everything from mortgages and corporate bonds to stock valuations and options.

Types of Treasuries#

How Treasury bills work#

T bills are sold below face value and pay face value at maturity. The difference is the interest.

Auctions#

The Treasury sells new securities through regular auctions:

• Bills are auctioned weekly or more often.
• Notes and bonds follow a regular calendar; for example, 10 year notes are sold monthly (new issues in February, May, August and November, with reopenings in between).
• Bidders include primary dealers, foreign central banks, funds and individuals. Individuals can buy directly through TreasuryDirect with non competitive bids, accepting the auction rate.

Auction results, such as the yield, bid to cover ratio and share taken by different bidders, are watched as signals of demand.

On the run and off the run#

The most recently issued security of each maturity is "on the run" and the most liquid. Older issues become "off the run" and usually trade at slightly higher yields because they are less liquid. Relative value traders exploit these small differences, sometimes with leverage, as Long Term Capital Management did before its 1998 collapse. See The Collapse of LTCM.

TIPS and breakeven inflation#

TIPS principal adjusts with the Consumer Price Index, so their yield is a real yield. The difference between a regular Treasury yield and a TIPS yield of the same maturity is the breakeven inflation rate, the market's implied inflation expectation.

breakeven inflation ≈ nominal Treasury yield - TIPS real yield

If the 10 year Treasury yields 4.3% and the 10 year TIPS yields 2.0%, breakeven inflation is about 2.3% a year. See Inflation.

Why Treasuries matter#

How Treasuries trade#

Treasuries trade over the counter through dealers and electronic platforms. Treasury futures on CBOT are heavily traded for hedging and speculation, and the gap between cash Treasuries and futures supports the Treasury basis trade. See Basis and Basis Trading.

Risks#

• Interest rate risk: long Treasuries can fall sharply when yields rise. The 30 year bond lost more than 30% in 2022 as rates surged. See Duration.
• Inflation risk for nominal Treasuries.
• Liquidity stresses occasionally hit even this market, as in March 2020.
• Fiscal and political risk: debt ceiling standoffs have raised concerns, and Moody's downgraded the US from AAA in May 2025, following S&P in 2011 and Fitch in 2023. See Credit Ratings.

Frequently asked questions#

What is the difference between Treasury bills, notes and bonds?#

Bills mature in a year or less and pay no coupon; notes mature in 2 to 10 years and bonds in 20 or 30 years, both paying semiannual coupons.

What are TIPS?#

Treasury Inflation Protected Securities, whose principal adjusts with the Consumer Price Index, protecting investors against inflation.

Why is the 10 year Treasury yield important?#

It is a benchmark for mortgage rates, corporate borrowing costs and valuations across markets.

Next, learn about company debt in Corporate Bonds.

Sources#

• TreasuryDirect, Treasury marketable securities