US Treasury Bills, Notes and Bonds

U.S. Treasury bills, notes, and bonds, together known as “Treasuries”, are issued by the Treasury Department and represent direct obligations of the U.S. government. Treasuries are backed by the full faith and credit of the U.S. government, and have very little credit risk.

They issued in various maturities of up to 10 years.

Characteristics

Treasury Bills

• Negotiable, noninterest-bearing securities with original maturities of three months, six months, and one year.
• Offered in minimum denominations of $10,000, with multiples of $5,000 thereafter, and are offered only in book entry form.
• Issued at a discount from face value and are redeemed at par value.
• The difference between the discounted purchase price and the face value is the interest income for the purchaser.
• The yield is a function of interest income and maturity of the T-bill.

Treasury Notes and Bonds

• Issued in maturities of 2, 3, 5, and 10 years on a regular schedule.
• Treasury notes are not callable.
• Pay interest semiannually, when coupon rates are set at the time of issuance based on market interest rates and demand for the issue.
• Issued monthly or quarterly, depending on the maturity of the issue.
• Settle regular-way, which is one day after the trade date (T+1).
• Interest is calculated using actual/365-day-count convention.

Treasuries are used for all investment, hedging, and speculative purposes.

Issuing Practices

T-bills are issued at regular intervals on a yield auction basis. The three-month and six-month T-bills are auctioned every Monday. The one-year T-bills are auctioned in the third week of every month. The amount of T-bills to be auctioned is released on the preceding Tuesday, with settlement occurring on the Thursday following the auction. The auction of T-bills is done on a competitive-bid basis (the lowest yield bids are chosen because they will cost the Treasury less money). Noncompetitive bids may also be placed on purchases of up to $1 million.

The price paid by these bids (if allocated a portion of the issue) is an average of the price resulting from the competitive bids. Two-year and 5-year notes are issued once a month. The notes are generally announced near the middle of each month and auctioned one week later. They are usually issued on the last day of each month. Auctions for 3-year and 10-year notes are usually announced on the first Wednesday of February, May, August, and November. The notes are generally auctioned during the second week of those months and issued on the 15th day of the month.