A Treasury Note is a U.S. government debt security with a fixed interest rate and maturity ranging from 2 to 10 years, offering semi-annual interest payments.
A Treasury Note (often abbreviated as T-Note) is a type of U.S. government debt instrument issued to finance federal spending. It has a maturity between 2 and 10 years and pays interest semi-annually. Treasury Notes are considered low-risk investments because they are backed by the full faith and credit of the U.S. government. Investors receive a fixed coupon payment every six months and the principal amount at maturity, making these notes a key component of the fixed-income market. In the finance and wealth management sectors, Treasury Notes serve as a benchmark for interest rates and are widely used for portfolio diversification and risk management. They provide predictable income streams and help manage duration risk within bond portfolios. The yields on Treasury Notes are often referenced to gauge economic expectations, including inflation and Federal Reserve monetary policy. Treasury Notes can be purchased at auction or on the secondary market and play a pivotal role in strategic allocation of capital for institutions such as family offices. Their liquidity and credit quality make them an essential safe-haven asset amid market volatility.
Including Treasury Notes in an investment portfolio can enhance diversification while providing a steady income stream and capital preservation. Their predictable cash flows and government backing help reduce credit risk and enhance portfolio stability. For wealth managers and investment advisors, these instruments are a valuable tool to balance risk and return while designing tailored fixed-income allocations for clients. From a tax and reporting perspective, Treasury Notes generate taxable interest income reported annually, necessitating appropriate tax planning considerations. Their role in interest rate risk management and yield curve strategies also informs governance decisions around investment policy implementation and liquidity management within family offices. Understanding Treasury Notes helps advisors and family offices optimize fixed-income exposure to meet long-term wealth preservation and income goals.
An investor purchases a $100,000 Treasury Note with a 4% annual coupon and a 5-year maturity. The investor receives $2,000 every six months as interest (4% × $100,000 ÷ 2). At the end of 5 years, the investor receives the $100,000 principal. Over 5 years, total interest income amounts to $20,000, providing steady income and principal preservation.
Treasury Note vs Treasury Bond
While both Treasury Notes and Treasury Bonds are U.S. government debt securities, Treasury Notes have maturities ranging from 2 to 10 years with semiannual interest payments, whereas Treasury Bonds typically have longer maturities (20 to 30 years) and also pay interest semiannually. Treasury Notes generally offer lower yields compared to Treasury Bonds due to shorter duration and lower interest rate risk. Investors select between these based on investment horizon, income needs, and risk tolerance.
How are Treasury Notes different from Treasury Bills?
Treasury Notes have maturities from 2 to 10 years with fixed semiannual interest payments, whereas Treasury Bills are short-term securities maturing in one year or less and are sold at a discount, paying no periodic interest but the face value at maturity.
Are Treasury Notes subject to federal and state taxes?
Interest earned on Treasury Notes is subject to federal income tax but is exempt from state and local income taxes, providing some tax efficiency for investors.
Can Treasury Notes help manage portfolio interest rate risk?
Yes, Treasury Notes offer different maturity terms that allow investors to manage interest rate risk exposure and adjust duration within fixed-income portfolios strategically.
