Treasury Securities Guide: T-Bills, T-Notes, T-Bonds, and TIPS
Types of Treasury Securities
| Security | Maturity | How Interest Is Paid | Minimum | Key Feature |
|---|---|---|---|---|
| Treasury Bills (T-Bills) | 4, 8, 13, 17, 26, 52 weeks | Sold at discount; no coupon | $100 | Safest short-term parking for cash |
| Treasury Notes (T-Notes) | 2, 3, 5, 7, 10 years | Semiannual coupon | $100 | Most actively traded; benchmark for mortgage rates |
| Treasury Bonds (T-Bonds) | 20, 30 years | Semiannual coupon | $100 | Longest maturity; highest duration |
| TIPS | 5, 10, 30 years | Semiannual; principal adjusts with CPI | $100 | Inflation protection |
| I Bonds | 30 years (1-year min hold) | Semiannual; composite rate (fixed + inflation) | $25 | Tax-deferred; no market price risk if held |
| FRNs | 2 years | Quarterly; rate floats with 13-week T-Bill | $100 | Protection against rising short-term rates |
How T-Bills Work
T-Bills don’t pay a coupon. Instead, you buy them at a discount to face value and receive the full face value at maturity. A 26-week T-Bill with a 5% annualized yield might cost approximately $975 for a $1,000 bill — the $25 difference is your return.
T-Bills are the closest thing to a risk-free asset. Money market funds hold them heavily, and they serve as collateral in financial markets. Their yields directly reflect the Federal Reserve’s current interest rate policy.
How T-Notes and T-Bonds Work
Notes and bonds pay a fixed coupon every six months. The 10-year Treasury note is the single most important security in finance — its yield drives mortgage rates, serves as the risk-free discount rate for valuation, and anchors the entire yield curve.
The 30-year Treasury bond carries the most duration risk of any Treasury. A 1% rise in yields can cause a 30-year bond to lose 15-20% of its value. It’s favored by pension funds and insurance companies who need to match long-term liabilities.
TIPS: Inflation Protection
TIPS protect against inflation by adjusting the principal value based on changes in the Consumer Price Index (CPI). If inflation rises 3%, your $1,000 TIPS principal becomes $1,030, and future coupon payments are calculated on this higher amount.
The “real yield” on TIPS tells you the return above inflation. When TIPS yields are positive, you’re guaranteed to beat inflation. When negative (as they were in 2020-2021), you’re accepting a small guaranteed loss relative to inflation in exchange for safety.
How to Buy Treasury Securities
TreasuryDirect.gov — Buy directly from the US government at auction. No commissions or middlemen. The best option for I Bonds (which can only be purchased here) and for holding Treasuries to maturity.
Brokerage accounts — Buy Treasuries on the secondary market through any major broker. This gives you more flexibility to trade before maturity and access to a wider range of maturities.
Treasury ETFs — Funds like SHY (1-3 year), IEF (7-10 year), and TLT (20+ year) give instant diversification across maturities. See our How ETFs Work guide for more.
Tax Treatment of Treasuries
Treasury interest is exempt from state and local income taxes — only federal tax applies. This makes Treasuries especially attractive for investors in high-tax states like California, New York, and New Jersey. The effective after-tax yield advantage can be significant.
TIPS create a tax complication: you owe federal tax on the inflation adjustment to principal each year, even though you don’t receive that money until maturity. This “phantom income” problem makes TIPS better suited for tax-advantaged accounts like IRAs.
Key Takeaways
- Treasury securities are the safest bonds in the world, backed by the US government’s full faith and credit.
- T-Bills (under 1 year), T-Notes (2-10 years), and T-Bonds (20-30 years) cover the full maturity spectrum.
- TIPS and I Bonds provide protection against inflation.
- Treasury interest is exempt from state and local taxes — a significant advantage in high-tax states.
- The 10-year Treasury yield is the most important rate in finance, driving mortgage rates and asset valuations.
Frequently Asked Questions
Are Treasury securities risk-free?
They carry essentially zero default risk — the US government has never defaulted on its debt. However, they still carry interest rate risk (prices fall when rates rise) and inflation risk (fixed payments may lose purchasing power). Only T-Bills held to maturity approach truly risk-free status.
What is the difference between T-Bills, T-Notes, and T-Bonds?
The main difference is maturity. T-Bills mature in one year or less and pay no coupon. T-Notes mature in 2-10 years with semiannual coupons. T-Bonds mature in 20-30 years with semiannual coupons. Longer maturities carry more interest rate risk.
How do I buy Treasury bonds?
Three main ways: directly from TreasuryDirect.gov at auction (no commissions), through a brokerage account on the secondary market, or via Treasury ETFs for instant diversification. Each approach has trade-offs in cost, convenience, and flexibility.
Should I buy TIPS or regular Treasuries?
Buy TIPS when you expect inflation to exceed the “breakeven rate” (regular Treasury yield minus TIPS yield). If 10-year Treasuries yield 4% and 10-year TIPS yield 1.5%, the breakeven is 2.5%. If you think inflation will average above 2.5%, TIPS win. Hold TIPS in tax-advantaged accounts to avoid phantom income taxation.
What is the I Bond annual purchase limit?
You can buy up to $10,000 in electronic I Bonds per person per calendar year through TreasuryDirect.gov. An additional $5,000 can be purchased with your federal tax refund in paper form. I Bonds must be held at least one year, and redeeming before five years forfeits the last three months of interest.