Treasury Bonds vs. Treasury Notes vs. Treasury Bills

The federal government offers three categories of fixed income securities to consumers and investors to fund its operations. Treasury bonds (T-bonds), Treasury notes (T-notes), and Treasury bills (T-bills) differ in the lengths of time before they reach maturity and how the interest on them is paid.

One thing they all have in common is a reputation for safety based on "the full faith and credit of the United States government."

[Important: Owners of T-bonds and T-notes are paid interest twice yearly. T-bills are sold at a discount, and the difference in price represents the buyer's profit.]

Treasury bonds, called T-bonds for short, are often referred to as long bonds because they take the longest to mature of the government-issued securities. They are offered to investors in a term of 30 years to maturity.

Purchasers of T-bonds receive an interest payment every six months. They pay the highest interest rates of the three types of government securities because they require the longest term of the investment. For the same reason, the prices at which they are issued fluctuate more than the other forms of government investment.

Treasury bonds are issued at monthly online auctions held directly by the U.S. Treasury, where they are sold in multiples of $100. After that, T-bonds are traded actively in a secondary market and can be purchased through a bank or broker.

Individual investors often use T-notes to keep a portion of their retirement savings risk-free, to provide a steady income in retirement, or to set aside savings for a child's education or other major expenses.

Treasury notes (T-notes) are similar to T-bonds, but they are offered in a wide range of terms as short as two years and no longer than 10 years. Like T-bonds, they generate interest payments twice a year, though their shorter terms mean lower yields. They also are sold in increments of $100.

The 10-year T-note is the most closely watched government bond. It is used as a benchmark rate for banks in calculating mortgage rates.

Treasury bonds also are auctioned by the U.S. Treasury at its site, TreasuryDirect.gov.

Treasury bills (T-bills) have the shortest terms of all. They're issued with maturity dates set at four, eight, 13, 26, and 52 weeks.

T-bills are auctioned off to investors at a discount to par, or face, value. The investor's return is the difference between the par value and the discount price paid at purchase.

Investors in any of these three types of U.S. debt can expect a high degree of safety and a steady but unspectacular profit.

The returns on all three of these U.S. debt securities fell after the financial crisis of 2008 and did not fully recover their prior levels until the fall of 2018. As of Jan. 30, 2019, the two-year T-note was trading at around 2.5%, and the T-bond was trading at around 3%.

• T-bonds, T-bills, and T-notes all are investments in government debt.
• Their main differences lie in their length to maturity, which ranges from four weeks to 30 years.