U.S. Treasury Bonds, Notes, and Bills: Complete Breakdown

When you hear the words Treasury bonds, you might think of boring government paperwork. But here’s the truth: these aren’t just for banks and hedge funds. Millions of everyday Americans use them to protect savings, fund college, or prepare for retirement-without taking on the kind of risk that keeps you up at night.

The U.S. government doesn’t just print money to pay its bills. It borrows. And when it does, it issues three main types of debt: Treasury bills, notes, and bonds. Each has a different life span, a different way of paying you, and a different role in your finances. Understanding them isn’t about becoming an economist. It’s about making smarter choices with your money-especially when the stock market feels like a rollercoaster.

What Are Treasury Bills (T-Bills)?

Treasury bills, or T-bills, are the shortest-term option. They mature in one year or less. Common maturities are 4 weeks, 8 weeks, 13 weeks, 26 weeks, and 52 weeks. You don’t get regular interest payments. Instead, you buy them at a discount. For example, you pay $970 for a $1,000 bill. When it matures, the government gives you the full $1,000. That $30 difference is your interest.

That’s it. No coupons. No monthly checks. Just a clean, simple return.

Because they’re so short-term, T-bills barely move in value. If interest rates go up, your T-bill won’t lose much. If rates drop, you won’t suddenly make a big profit. That’s why they’re perfect for emergency funds or money you need in the next 6 to 12 months. In 2023, yields on 52-week T-bills hovered around 5.25%-far higher than most savings accounts.

They’re also the easiest to buy. You can go to TreasuryDirect.gov, set up an account in 15 minutes, and bid in the next auction. Minimum purchase: $100. Maximum? No limit if you’re not bidding competitively. And because they’re backed by the U.S. government, they’ve never missed a payment-not in 235 years.

What Are Treasury Notes (T-Notes)?

Treasury notes are the middle child. They mature in 2, 3, 5, 7, or 10 years. Unlike T-bills, they pay interest every six months. If you buy a $10,000 10-year note with a 4.5% coupon rate, you get $225 every six months. At the end of 10 years, you get your $10,000 back.

That regular income makes them popular for people saving for a big expense in 5 to 10 years-like a child’s college tuition or a down payment on a house.

But here’s the catch: because they last longer, their price can swing when interest rates change. If you buy a 10-year note at 4.65% and rates jump to 5.5% next year, your note’s market value drops. You could lose money if you sell it early. That’s why many people hold them until maturity.

In October 2023, the 10-year note yielded 4.65%. That’s higher than the average 10-year CD, and you don’t have to lock your money in for the full term-you can sell it anytime on the secondary market. But most investors don’t. They hold them for the steady income and safety.

One big advantage? No state or local taxes. If you live in California, New York, or any other high-tax state, that’s a real boost. A 4.65% yield in a taxable account might feel like 3.5% after state taxes. But with T-notes, you keep the full 4.65%.

What Are Treasury Bonds (T-Bonds)?

Treasury bonds are the long-haul option. They mature in 20 or 30 years. The U.S. Treasury brought back the 20-year bond in 2020 after a 9-year break, responding to investor demand for longer-term options. These pay interest every six months, just like notes.

As of October 2023, the 30-year bond yielded 4.85%. That’s the highest rate in over a decade. But unlike T-bills and T-notes, bonds are mostly used for portfolio balance-not short-term goals.

Why? Because they’re sensitive. When interest rates rise, bond prices fall. And with 30 years to go, even a small rate shift can cause big price swings. But when markets crash, bonds do the opposite. During the March 2020 stock market plunge, the S&P 500 lost 34%. Meanwhile, 30-year T-bonds gained 15.3%. That’s not a typo. They went up while everything else fell.

That’s why financial advisors put them in retirement portfolios. They’re your shock absorber. When stocks tank, bonds often rise. That balance keeps your overall portfolio from getting wrecked.

They’re also used by institutions-pension funds, insurance companies, foreign governments-to match long-term liabilities. Japan and China together hold over $2 trillion in U.S. bonds. That’s not because they’re desperate. It’s because no other market is big enough, liquid enough, or safe enough.

How They Compare: A Quick Look

Why So Many People Use Them

It’s not just safety. It’s predictability.

On Reddit’s r/personalfinance, users post about building “T-bill ladders.” One investor, u/ConservativeInvestor89, spread $50,000 across 13-week T-bills, rolling them over every quarter. He earned 5.1% risk-free, with cash always available. No broker fees. No credit risk. Just the U.S. government paying him.

Others use T-notes to replace part of their bond fund. Instead of buying a mutual fund that holds hundreds of bonds, they buy individual 10-year notes. That way, they know exactly when they’ll get their money back. No surprises.

And during the 2022-2023 rate hikes, when the Fed raised rates to fight inflation, T-bill yields jumped faster than any savings account. That’s why so many people shifted cash out of money market funds and into direct Treasury purchases.

How to Buy Them

You have two main ways: TreasuryDirect.gov or a brokerage.

TreasuryDirect.gov is free. You open an account, link your bank, and bid in auctions. You can buy up to $10 million per auction (non-competitive bids). The process is simple: choose the security, enter the amount, submit. You’ll get your securities in 1-2 business days. The site even has free webinars to walk you through it.

Brokerages like Fidelity, Charles Schwab, or Vanguard make it even easier. You can buy Treasuries on the secondary market anytime, not just during auctions. You can also set up automatic reinvestments. But you might pay a small fee-usually under $20.

One thing to watch: auction deadlines. T-bills auction every Monday (except holidays). If you miss the cutoff, you wait a week. Many beginners get tripped up by that.

Common Mistakes to Avoid

Not everyone gets it right.

Mistake 1: Selling T-notes during a rate hike. One Reddit user, u/BondPanic, sold his 10-year note in June 2022 after it lost 7.3% in value. He thought he was cutting losses. But rates kept rising. He missed the rebound. He ended up buying back in at a higher yield-after locking in a real loss.

Mistake 2: Ignoring inflation. A 5% yield sounds great-until inflation is 4%. That’s only 1% real return. In 2021-2023, many T-bill investors earned nominal gains but lost purchasing power. That’s why some pair Treasuries with TIPS (Treasury Inflation-Protected Securities).

Mistake 3: Thinking they’re risk-free. They’re default-risk-free. But not interest-rate-risk-free. If you need cash before maturity, you might have to sell at a loss. Know your timeline.

What’s Next for Treasury Securities?

The Treasury Department announced in July 2023 that it would increase quarterly bond issuance by 15%-to $96 billion per quarter. Why? The federal deficit is growing. More borrowing means more supply.

That could push yields higher. Bank of America predicts 3-month T-bill yields will drop to 3.75% by late 2024, while 10-year notes climb to 4.25%. But if inflation stays sticky, that could change fast.

Meanwhile, the Treasury is upgrading its auction system to make it easier for regular people to participate. By mid-2024, you might be able to bid on Treasuries directly from your phone app-no more logging into TreasuryDirect.

And while foreign buyers still hold $7.6 trillion in U.S. debt, their share is slowly shrinking. More of the market is now owned by U.S. individuals and institutions. That’s a sign of confidence.

Frequently Asked Questions

Next Steps

If you’re new to Treasuries, start with a $1,000 T-bill. Go to TreasuryDirect.gov. Set up your account. Watch the next auction. See how it works. Then try a 10-year note. Don’t try to time the market. Just build a small position. Over time, you’ll see how they fit into your bigger picture.

If you already have a brokerage account, check if you can buy Treasuries directly there. Many platforms let you add them to your portfolio with one click.

And remember: you don’t need to be rich to use them. You don’t need a financial advisor. You just need to understand what they are-and why they matter.