Treasury Note

Definition

A Treasury Note (T-Note) is an intermediate-term financial instrument issued by the U.S. Department of the Treasury. It represents a loan made by investors to the government and comes with a fixed interest rate, known as the coupon rate, which is paid semi-annually. Treasury notes typically have maturities ranging from one to ten years and are considered one of the safest investments available because they are backed by the full faith and credit of the U.S. government.

Examples

5-Year Treasury Note: A bond issued by the U.S. government with a maturity of five years and an annual interest (coupon) payment.
7-Year Treasury Note: A government-issued bond with a seven-year term and a predetermined interest payment made every six months.
10-Year Treasury Note: This note matures in 10 years and pays interest twice a year to its holders.

Frequently Asked Questions (FAQs)

What is the main difference between Treasury Notes and Treasury Bonds?

Treasury Notes have maturity periods between one and ten years, while Treasury Bonds have longer maturities, typically 20 or 30 years.

How often are interest payments made on Treasury Notes?

Interest payments are made semiannually, meaning investors receive them twice a year.

Are Treasury Notes taxable?

Yes, the interest income from Treasury Notes is subject to federal taxes but is exempt from state and local taxes.

Can Treasury Notes be traded in the secondary market?

Yes, Treasury Notes can be bought and sold in the secondary market before they mature.

What is the risk associated with investing in Treasury Notes?

Treasury Notes are considered low-risk investments because they are backed by the U.S. government, though they do carry interest rate risk.

Treasury Bond

A long-term debt security issued by the U.S. government with a maturity of more than 10 years and a fixed interest rate.

Treasury Bill

A short-term debt instrument issued by the U.S. government with maturities of one year or less, sold at a discount and pays no coupon.

Coupon Rate

The interest rate stated on a bond when it’s issued, representing the amount of interest payable annually.

Yield

The income return on an investment, such as the interest or dividends received, expressed as a percentage.

Online References

Suggested Books for Further Studies

“The Bond Book: Everything Investors Need to Know About Treasuries, Municipals, GNMAs, Corporates, Zeros, Bond Funds, Money Market Funds, and More” by Annette Thau
“The Strategic Bond Investor: Strategies and Tools to Unlock the Power of the Bond Market” by Anthony Crescenzi
“Fixed Income Securities: Tools for Today’s Markets” by Bruce Tuckman and Angel Serrat

Fundamentals of Treasury Notes: Finance Basics Quiz

### What is the maturity range for a Treasury Note? - [ ] Less than 1 year - [ ] Over 30 years - [x] 1 to 10 years - [ ] 10 to 20 years > **Explanation:** Treasury Notes have a maturity range of 1 to 10 years, making them an intermediate-term obligation of the U.S. government. ### How often are interest payments made on Treasury Notes? - [ ] Annually - [ ] Monthly - [x] Semiannually - [ ] Quarterly > **Explanation:** Interest payments on Treasury Notes are made semiannually, providing investors with two payments per year. ### Are the interest payments on Treasury Notes subject to state and local taxes? - [ ] Yes, always - [x] No, they are exempt from state and local taxes - [ ] Yes, only in some states - [ ] No, only subject to federal taxes > **Explanation:** The interest income from Treasury Notes is exempt from state and local taxes but is subject to federal taxation. ### What type of reliability do Treasury Notes possess? - [x] High credit standing - [ ] Moderate risk - [ ] Speculative grade - [ ] High volatility > **Explanation:** Treasury Notes carry a high credit standing as they are backed by the U.S. government, making them one of the safest investments available. ### Can Treasury Notes be traded before they mature? - [x] Yes, they can be traded in the secondary market - [ ] No, they must be held until maturity - [ ] Yes, but only by institutional investors - [ ] No, once purchased, they are locked in > **Explanation:** Treasury Notes can be bought and sold in the secondary market, providing liquidity for investors who wish to trade before maturity. ### What risk is associated with Treasury Notes? - [x] Interest rate risk - [ ] High default risk - [ ] High inflation risk - [ ] Currency risk > **Explanation:** While Treasury Notes have low default risk, they are subject to interest rate risk. This means their value can fluctuate with changes in interest rates. ### How are Treasury Notes typically sold? - [ ] At a premium - [x] At face value - [ ] Only online - [ ] Through third-party institutions > **Explanation:** Treasury Notes are issued at face value and sold through auctions conducted by the U.S. Treasury, but they can also be purchased in the secondary market. ### Do Treasury Notes come with a coupon rate? - [x] Yes - [ ] No - [ ] Only for specific issues - [ ] Yes, but only for short maturities > **Explanation:** Treasury Notes come with a fixed interest rate, known as the coupon rate, which is paid semiannually. ### Are Treasury Notes considered a form of fixed income security? - [x] Yes - [ ] No - [ ] Only in certain conditions - [ ] Not typically > **Explanation:** Treasury Notes are a type of fixed income security since they provide regular, predetermined interest payments. ### What type of market can Treasury Notes be traded in? - [x] Secondary market - [ ] Only primary auctions - [ ] Real estate market - [ ] Foreign exchange market > **Explanation:** Treasury Notes can be bought and sold in the secondary market, providing liquidity options for investors.

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