# Treasury Bills, Notes and Bonds

> US Treasuries are bills, notes and bonds issued by the federal government. Learn their maturities, how auctions work, TIPS, how they trade and why they matter.

Source: https://learn.tradelabsai.com/bonds-credit/treasury-bills-notes-and-bonds/  
Track: Bonds, Rates and Credit · Level: Intermediate · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "Treasury Bills, Notes and Bonds", https://learn.tradelabsai.com/bonds-credit/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

| Security | Maturity | Interest | Notes |
|---|---|---|---|
| Treasury bills (T bills) | 4 to 52 weeks (including 6, 8, 13, 17, 26 weeks) | None; sold at a discount | Cash management |
| Treasury notes | 2, 3, 5, 7 and 10 years | Fixed coupon, every six months | The 10 year is the key benchmark |
| Treasury bonds | 20 and 30 years | Fixed coupon, every six months | Long term |
| TIPS | 5, 10 and 30 years | Coupon on inflation adjusted principal | Principal rises with CPI |
| Floating rate notes (FRNs) | 2 years | Floating, tied to 13 week bill rates | Low interest rate risk |
| STRIPS | Various | None; individual coupon and principal parts | Zero coupon securities |

## How Treasury bills work

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

**Example: A 26 week T bill**
You buy a 26 week T bill with $10,000 face value for $9,760. At maturity you receive $10,000. Your return is $240, or about 2.46% over six months. Annualised as a bond equivalent yield, that is about 4.9%. See [How Bonds Work](https://learn.tradelabsai.com/bonds-credit/how-bonds-work/).

## 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](https://learn.tradelabsai.com/history/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](https://learn.tradelabsai.com/macro/inflation/).

## Why Treasuries matter

| Role | Explanation |
|---|---|
| Benchmark rates | Other borrowing costs are priced as spreads over Treasuries. See [Credit Spreads](https://learn.tradelabsai.com/bonds-credit/credit-spreads/) |
| Safe haven | Investors buy Treasuries in crises, pushing yields down |
| Monetary policy | The Federal Reserve buys and sells Treasuries and influences short rates. See [Quantitative Easing and Tightening](https://learn.tradelabsai.com/macro/quantitative-easing/) |
| Collateral | Treasuries back trillions of dollars of repo and derivatives |
| Global reserves | Foreign central banks hold large amounts |

## 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](https://learn.tradelabsai.com/futures/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](https://learn.tradelabsai.com/bonds-credit/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](https://learn.tradelabsai.com/bonds-credit/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](https://learn.tradelabsai.com/bonds-credit/corporate-bonds/).

## Sources

- TreasuryDirect, [Treasury marketable securities](https://www.treasurydirect.gov/marketable-securities/)

## Continue learning

- Next lesson: [Corporate Bonds](https://learn.tradelabsai.com/bonds-credit/corporate-bonds/)
- Previous lesson: [How Bonds Work](https://learn.tradelabsai.com/bonds-credit/how-bonds-work/)
- Related: [How Bonds Work](https://learn.tradelabsai.com/bonds-credit/how-bonds-work/): A bond is a loan that pays interest and returns principal at maturity. Learn coupons, price and yield, why prices fall when rates rise and the main bond risks.
- Related: [Yield Curves](https://learn.tradelabsai.com/bonds-credit/yield-curves/): The yield curve plots bond yields across maturities. Learn normal, flat and inverted curves, what drives them and why inversions have signalled recessions.
- Related: [Interest Rates](https://learn.tradelabsai.com/macro/interest-rates/): Interest rates are the price of money and a key driver of asset prices. Learn policy vs market rates, real rates and how rates move stocks, bonds and currencies.
- Related: [The Federal Reserve and the FOMC](https://learn.tradelabsai.com/macro/the-federal-reserve-and-the-fomc/): The Federal Reserve sets US monetary policy through the FOMC. Learn how meetings work, the dot plot, statements and press conferences, and how Fed days trade.
- Related: [Basis and Basis Trading](https://learn.tradelabsai.com/futures/basis-and-basis-trading/): Basis is the gap between a spot price and a futures price. Learn how hedgers manage basis risk, how basis trades work and the Treasury basis trade.