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Treasury Notes

Candlefocus Editor
Treasury notes are a type of debt instrument issued by the U.S. government to fund government spending. When the government issues these securities, investors purchase them through competitive or non-competitive bids, in which the investor either specifies the yield, or accepts whatever yield is determined. Treasury notes have maturities between two and 10 years, whereas Treasuries bonds have maturities of 20 to 30 years.

Unlike Treasury bonds, Treasury notes pay interest semi-annually. In comparison, Treasury bonds pay interest every 6 months. Treasury notes and bonds are offered in varying sizes, known as “denominations,” ranging from $100 to $1 million.

Treasury notes are a great way for investors to hedge against market risks by investing in a low-risk government security. Since the government guarantees repayment of the principal and interest at maturity, Treasury notes are considered free from default risk. Other advantages of Treasury notes include flexibility, limited sale restrictions, and liquidity.

The primary risk associated with Treasury notes is interest rate risk, which is the risk that the market interest rate will change over the life of the note. When market interest rates fall below the interest rate of a note, the note becomes less attractive and its value decreases. On the other hand, if market interest rates rise, the value of the note will increase.

Overall, Treasury notes are an attractive debt instrument for investors who seek a federally guaranteed, low-risk investment. These notes provide investors with the opportunity to earn relatively high returns, while also offering liquidity, flexibility, and low sale restrictions.

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