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Treasury Bonds Notes And Bills

With so many different types of bonds, it's no wonder that they can be so confusing. Three common types of bonds are Treasury Bills (T-Bills), Treasury Notes (T-Notes), and Treasury Bonds (T-Bonds).

As their names suggest, all of these bonds are issued by the United States Treasury. What this means is that the government sells these bonds to the public in order to raise money to run the country. Investors buy these bonds in hope to make money from them in the form of interest. And although these bonds all have similar names and are sold to the public by the US Treasury, there are some notable differences.


These are probably the most common types of bonds that small investors are used to seeing. T-Bonds are long-term debt issues that don't mature for at least 10 years and act as major funding to keep government operations running. T-Bond investors earn interest on their money and when the bond matures, they earn the full value of the bond back.

New issues of T-Bonds are sold to the public by auctions at Federal Reserve Banks. However, most investors purchase them through their brokers after they have been issued.

T-Bonds are very safe investments because they are backed by the federal government. What is also nice about these bonds is that they are exempt from local and state taxes, although you still have to pay federal taxes on the income.

Although they are safe investments and offer a couple tax advantages, they usually generate lower interest rates than corporate bonds (bonds issued by companies). Also, new issues usually require a minimum investment of $1,000.


T-Notes are a lot like T-Bonds. Like T-Bonds, T-Notes are exempt from state and local taxes and offer maximum safety to the investor because they are backed by the federal government. They also pay low interest rates and are sold by the Federal Reserve Banks.

The only real difference between the two is that T-Notes are shorter-term investments. T-Notes usually carry maturity dates of anywhere between 2-10 years and offer investors a short-term alternative to investing in bonds.


When it comes to short-term investing in bonds, these are the types of bonds that you go for. These short-term investments have maturity dates of 3 months, 6 months, and one year.

The government sells these bonds in the same fashion as T-Bonds and T-Notes. However the money that the government generates is used for immediate spending rather than funding the government in the long-term.

Unlike T-Bonds and T-Notes, these bonds don't pay interest to their holders. Instead, the investor profits by the increase of the bond's price from the time they bought it and its value at maturity.

Unfortunately, these bonds usually aren't issued to small investors because they often carry minimum investments of $10,000 or more. However, many money market accounts carry these bonds to generate interest for the investors. Also, mutual funds that are referred to as "short-term bond funds" usually hold a large portion of their portfolio in these bonds.

Although all these forms of bonds offer a large degree of safety, they have historically underperformed the stock market year after year. It might be wise to invest in some T-Bonds or T-Notes to lower your risk and help you sleep better at night but when it comes to investing for the long-term, it's probably best to keep most of your portfolio invested in stocks and/or mutual funds.


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