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

When you hear the words Treasury bonds, you might think of boring government paperwork. But if you’re looking for a safe place to put your money - especially when the stock market feels like a rollercoaster - U.S. Treasury securities are one of the most reliable tools you can use. They’re not flashy. They don’t promise huge returns. But they deliver something even more valuable: certainty.

The U.S. government has never missed a payment on its debt. Not once. Not in 235 years. That’s not just a nice fact - it’s the foundation of global finance. Whether you’re saving for a house in five years, building an emergency fund, or trying to balance out your risky stock picks, Treasury securities offer a steady anchor. And the best part? You can buy them with as little as $100.

What Are Treasury Bills, Notes, and Bonds?

The U.S. Treasury issues three main types of debt: bills, notes, and bonds. They all represent loans you make to the federal government. In return, you get your money back with interest. The only real difference between them is how long you have to wait to get it back.

Treasury bills (T-bills) are short-term. They mature in one year or less. You’ll find them with maturities of 4 weeks, 8 weeks, 13 weeks, 17 weeks, 26 weeks, or 52 weeks. These aren’t like regular bonds that pay you interest every six months. Instead, they’re sold at a discount. If you buy a $1,000 T-bill for $970, you’re effectively earning $30 in interest when it matures. That’s it. No checks in the mail. Just a lump sum when the clock runs out.

Treasury notes (T-notes) are the middle ground. They come in 2-year, 3-year, 5-year, 7-year, and 10-year terms. These pay interest every six months. So if you buy a $1,000 10-year note with a 4.5% coupon rate, you’ll get $22.50 every six months for ten years - and then get your $1,000 back. Simple. Predictable.

Treasury bonds (T-bonds) are the long-term players. Since 2020, the U.S. has been issuing 20-year and 30-year bonds again. These also pay interest every six months, just like notes. But because they last longer, they’re more sensitive to changes in interest rates. If rates go up, the value of your 30-year bond drops. If rates go down, your bond becomes more valuable. That’s why they’re used more for long-term portfolio balance than for quick cash.

How Do They Compare?

Here’s the real question: which one should you buy? It depends on your timeline, your risk tolerance, and what else is going on in the economy.

Let’s look at the numbers as of October 2023:

T-bills are the safest in terms of price swings. Because they mature so fast, interest rate changes barely touch them. That’s why so many people use them for cash reserves. If you’re worried about losing money in a market crash, T-bills are your insurance policy.

T-notes are where most investors live. They offer a decent yield without the wild ride of long-term bonds. If you’re saving for a child’s education or planning to buy a home in 5-7 years, a 5-year or 7-year note gives you a solid return without tying up your money for decades.

T-bonds are the quiet heroes. They don’t get much attention, but during the 2020 market crash, 30-year bonds rose 15.3% while the S&P 500 fell 34%. That’s the power of a long-term, low-risk asset when everything else is falling apart. They’re not for everyone - if you need to sell before maturity, you might take a loss if rates have gone up. But if you hold them to the end, you get every penny of interest, no matter what.

Why Do Yields Change - And What Does It Mean?

Yields on Treasury securities move with the economy. When the Federal Reserve raises interest rates to fight inflation, new T-bills and T-notes pay more. That makes older bonds with lower rates less valuable. So if you own a 3% bond and new ones are paying 5%, your bond’s market value drops.

That’s why the shape of the yield curve matters. Normally, longer-term bonds pay more than shorter-term ones. That’s called a normal yield curve. But in mid-2022, something unusual happened: 3-month T-bills were paying 5.4%, while 10-year notes were only paying 3.85%. That’s called an inverted yield curve. And historically, it’s been a warning sign of recession.

Why? Because investors are betting that the Fed will have to cut rates soon - meaning the economy will slow down. When that happened in 2022-2023, people started moving money out of stocks and into Treasuries. That drove prices up and yields down on longer-term bonds. It was a classic “flight to safety.”

Don’t panic if you see an inversion. It doesn’t mean a crash is coming tomorrow. But it does mean you should think twice about locking your money into long-term bonds if you think rates might fall soon. If you’re holding a 30-year bond and rates drop, you could make a nice profit by selling it. But if you’re holding a T-bill and rates fall, you’ll just have to reinvest at a lower rate.

How to Buy Them - And Avoid Common Mistakes

You can buy Treasury securities directly from the U.S. government through TreasuryDirect.gov. It’s free. No broker fees. No commissions. Just set up an account, link your bank account, and bid in auctions.

There are two ways to bid:

• Non-competitive bid: You agree to accept whatever yield the auction sets. You’re guaranteed to get your securities. This is the easiest way for beginners.
• Competitive bid: You say what yield you’re willing to accept. You might not get your full amount if others bid higher. Only use this if you know what you’re doing.

T-bills auction every Monday (except holidays). Notes and bonds auction monthly. You can buy up to $10 million in a single auction - but most people buy $1,000 or $5,000 at a time.

Here’s what trips people up:

• Reinvestment risk: When your T-bill matures, you have to decide what to do with the money. If rates have dropped, you’ll earn less next time. That’s why some investors build a “ladder” - buying T-bills that mature every month so they’re always reinvesting at current rates.
• Selling too early: One Reddit user sold a 10-year note after a Fed rate hike and took a 7.3% loss. He didn’t realize the bond would recover if held to maturity. Don’t treat Treasuries like stocks.
• Ignoring taxes: You don’t pay state or local taxes on Treasury interest - only federal. That’s a big deal if you live in California, New York, or any high-tax state.

Many people use brokers like Fidelity or Charles Schwab to buy Treasuries. It’s convenient - they’ll auto-reinvest your proceeds and send you interest checks. But they charge fees for some services. TreasuryDirect is free, but it’s not as user-friendly. If you’re buying $50,000 or more, the broker might be worth it. If you’re starting small, go direct.

Who Uses Them - And Why

Most people think Treasuries are for retirees. But that’s not the whole story.

Institutional investors - pension funds, insurance companies, foreign governments - hold about 78% of all U.S. Treasuries. Japan and China together own over $2 trillion. Why? Because they need a safe place to park their dollars. The U.S. Treasury market is the largest and most liquid in the world. If you need to sell $10 billion in bonds tomorrow, you can - and you’ll still get a fair price.

Individuals hold only 8.7%. But that number is growing. In 2023, over 1.2 million new TreasuryDirect accounts were opened. Why? Because yields hit 5%+ for the first time in 15 years. People saw a chance to earn risk-free returns that beat savings accounts, CDs, and even some money market funds.

And during the 2020 pandemic, when stocks crashed, Treasuries didn’t just hold their value - they surged. That’s why financial advisors now recommend them as part of every balanced portfolio, no matter your age.

What’s Changing in 2024 and Beyond

The Treasury Department is making changes. In July 2023, they announced they’d increase quarterly bond issuance by 15% to cover growing federal deficits. That means more bonds hitting the market - which could push yields higher.

Analysts at Bank of America and J.P. Morgan expect T-bill yields to stay above 4.5% through 2024. Longer-term yields might creep up slightly too, but not dramatically. The big wild card? Inflation. If prices keep falling, the Fed might cut rates in 2024 - and that could send bond prices soaring.

There’s also a push to make auctions more digital. The Treasury Market Practices Group is working on better tools for retail investors. By mid-2024, you might be able to buy Treasuries right from your phone with one tap.

But the core truth hasn’t changed: U.S. Treasuries are still the gold standard for safety. Even with inflation eating away at real returns, they protect your principal. And in a world of crypto crashes, bank failures, and political chaos, that’s worth more than any yield.

Final Thoughts

Treasury bills, notes, and bonds aren’t glamorous. They won’t make you rich overnight. But they won’t lose your money either. In a world full of uncertainty, that’s a rare gift.

If you’re just starting out, buy a few T-bills. Learn how auctions work. Watch how yields move. Then add a 5-year note. Later, if you’re ready, a 20-year bond can be your long-term safety net.

Don’t chase the highest yield. Chase stability. Don’t time the market. Time your goals. And remember - the U.S. government has never broken its promise to pay. That’s not something you can say about much else these days.