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Comparison of Types of U.S. Treasuries

written by: Brian Nelson•edited by: Rebecca Scudder•updated: 6/28/2011

U.S. Treasuries are sought after as investments worldwide because of their safety, and risk-free rate of default. However, there are several types of Treasuries, ranging from T-Bills to Notes to Bonds.

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    What Are Treasury Bonds

    Treasury Bonds are the longest maturity U.S. issued debt. These bonds are issued with a 30-year maturity. Although paper Treasury Bonds are no longer issued, there are still plenty of them out there thanks to their long lifespan. Bonds are sold at auction by the U.S. Treasury Department. These auctions are announced publicly ahead of time and are set based upon the need for the government to finance its operations and already existing public debt.

    The combination of demand for Treasury Bonds and the level of interest rate bids set the rate at which the bond is issued. Treasury Bonds have a fixed interest rate for life which makes them very safe and predictable. This stability makes these bonds very attractive to pension funds, which use Treasury Bonds for investing long-term pension funds.

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    What Are Treasury Notes

    A Treasury Note is also debit security issued by the U.S. Government and is similarly risk-free from default. Sometimes referred to as T-Notes, Treasury Notes are issued in terms of 2, 3, 5, 7 and 10-year maturities. These notes provide a similarly safe investment as Treasury Bonds without having to lock up the investment for such a long period. As a result, T-Notes are used by regular investors as a way to generate interest income, or to provide stability to an investment portfolio.

    Treasury Notes can be purchased directly through the Treasury Direct website, and can also be purchased from many banks or brokers. The yield for T-Notes is also determined by public auction. Interest is paid every six months for the life of the note.

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    What Are T-Bills

    Treasury Bills, most often called T-Bills, are shorter term U.S. Government debt. Like its related securities, T-Bills are also free from default risk. T-Bills come with a maturity of one-year or less. Standard publicly available T-Bills are issued in 4, 13, 26, and 52 week maturities. Unlike T-Notes and Treasury Bonds, T-Bills do not make interest payments. Rather, the securities are sold at a discount to their face value. The interest payment is the difference between the purchase price and the amount paid at redemption.

    The “rate” paid by T-Bills is determined at public auction with orders for the least amount of discount from face value being fulfilled first. Thus, the lowest “interest rate bids” are awarded the securities.