Treasury Notes
- Treasury notes are interest-bearing securities that have a fixed maturity of not less than 1 year and not more than 10 years from date of issue.
- Treasury currently issues notes in 2, 5, and 10-year maturities.
- Treasury notes pay interest on a semi-annual basis.
- When a note matures, the investor receives the face value.
Price vs. Yield to Maturity
The price of a fixed-rate security depends on the relationship between its yield to maturity and the interest rate. If the yield to maturity (YTM) is greater than the interest rate, the price will be less than par value; if the YTM is equal to the interest rate, the price will be equal to par; if the YTM is less than the interest rate, the price will be greater than par. See an example of price vs. yield to maturity.
When purchasing a Treasury note, any interest accrued since the last interest payment is added to the note purchase price. At the next interest payment date the investor receives the full interest payment.
Use the following formula to figure accrued interest:
| A = P x r (( d / t )/2) | A = Accrued Interest P = Face value r = interest rate of Treasury note d = # of days since last coupon payment t = # of days in current coupon period |
Example: A 5% 10-year note ($1,000 principal) is purchased 91 days after the last coupon payment. The current coupon period contains 182 days.
A = 1000 x .05 (( 91 / 182 )/2) , solving
A = $12.50
Methods of Purchase
- Treasury notes can be purchased by individual investors in TreasuryDirect.
- Treasury notes can be purchased by individuals, organizations, fiduciaries, and corporate investors in Legacy Treasury Direct or through a broker or financial institution.
- Institutions may establish a TAAPS account to bid for Treasury securities directly at auction. Learn more about establishing a TAAPS account.
Maturity Terms by Purchase Method:
| Maturity Term | TreasuryDirect | Legacy Treasury Direct | Broker/Financial Institution | TAAPS |
| 2-Year Note | Yes | Yes | Yes | Yes |
| 5-Year Note | Yes | Yes | Yes | Yes |
| 10-Year Note | Yes | Yes | Yes | Yes |
Auction Frequency
- The 2-year and 5-year notes are auctioned on a monthly basis.
- The 10-year notes are auctioned at the quarterly refunding in February, May, August, and November.
- 10-year notes are also auctioned as reopenings in March, June, September, and December. The reopened security has the same maturity date and interest payment date as the original security, but has a different issue date and usually a different price.
For tentative auction dates, see the Tentative Auction Schedule, or for actual scheduled auction dates, see the Upcoming Treasury Marketable Securities Auctions. Institutions may also sign up for e-mail notification for auctions.
Bidding
Auction bids for Treasury securities may be submitted as noncompetitive or competitive.
- With a noncompetitive bid, a bidder agrees to accept the yield determined at auction. A bidder is guaranteed to receive the full amount of the security bid.
- With a competitive bid, a bidder specifies the yield that is acceptable. This bid may be accepted in the full amount if the rate specified is less than the yield set by the auction, accepted in less than the full amount requested if the bid is equal to the high yield, or not awarded if the rate specified is higher than the yield set at the auction.
To place a noncompetitive bid, an individual investor may use TreasuryDirect. Individuals, organizations, fiduciaries, and corporate investors may use Legacy Treasury Direct, a broker, or other financial institution.
To place a competitive bid, a bidder must use a broker, financial institution, or have an established TAAPS account.
 | |
| Original issue rate: | The yield determined at auction. See rates in recent auctions |
| Minimum purchase: | $100 |
| Maximum purchase: | Non-competitive: $5 million Competitive: 35% of offering amount (see types of bidding) |
| Investment increment: | Multiples of $100 |
| Issue method: | Electronic |
 | |
Redeem, Reinvest, or Sell
A Treasury note can be held to maturity or sold before it matures. If a note is held until it matures, the note's principal can be used to buy another security or the note can be redeemed. See more information on how to redeem, reinvest, or sell Treasury notes.
Tax Considerations
Interest on Treasury notes is exempt from state and local taxes but is subject to federal tax. See more information on tax considerations.
