Treasury Notes

Topics In Order:

  • Quick Facts
  • Bidding
  • Durations
  • Maturity Options
  • Purchase Scenarios
  • Where to Purchase

 

   Quick Facts:

  • Treasury Notes can only be bought online, as of the present moment
  • Treasury Notes, also known as T-notes, are commonly used to supplement retirement income as well as to finance college education.
  • T-notes earn a fixed rate of interest every six months, until they finally mature.
  • They are issued in maturation terms of 2, 3, 5, 7, or 10 years.
  • These notes are bought at a minimum of $100.00; they are bought upwards in multiples of $100.00.
Specifications:  
Buying These notes can be bought for less than, greater than, or equal to the note's face value. These notes will pay interest every six months, until the final maturity date, when the full face value of the note will be paid to the owner; the periodical 6-month payments, are paid directly to you--kind of like a "cou pon" system. The T-notes can be bought at TreasuryDirect or from a bank/broker. Often, when one buys a T-note, they'll be charged for accrued interest, which is the interest the T-note made in the interest period before you bought it; however, TreasuryDirect will pay back that little "tax" during the next payment window.
Selling These notes can be sold where ever you purchased the note, as well as with a bank/broker or TreasuryDirect. One can either sell on, after, or before the final maturation date.
Maturity T-notes, like Treasury Bills, have various maturation terms. So, those with longer maturation terms will pay more; however, T-notes, unlike T-bills, have much longer maturation terms, which means that one should only invest in these if they are investing in their retireme nt.

 

Bidding Rules:

  • Noncompetitive Bidding: When one purchases a Treasury Security in this manner at an auction, one is agreeing to pay the accepted discount rate at the auction. These securities are great because they guarantee you the security you want, for the price you want.
  •     Competitive Bidding: When purchasing this type of Treasury Security, you specify the discount rate you're willing to accept.     
    Bid Accepted: Because....
    Yes The bid for the full amount will be accepted if the rate you specify is less than the discount rate set by the auction.
    Yes The bid for less than the full amount will be accepted if your bid is equal to the high discount rate.
    No The bid will be rejected if the rate you declare is higher than the discount rate set by the auctioneer(s).
     

 

Durations:

Durations (years):

 Auction Frequency: Bank/Broker (usually secondary market (i.e. higher price)):    Treasury Direct: Legacy Treasury Direct:
2 Monthly Yes Yes Yes
3 Monthly

Yes

 Yes Yes
5 Monthly Yes Yes Yes
7 Monthly Yes Yes Yes
10 Original Issues: Frebruary, May, August, and November Yes Yes Yes



After-Sale/Maturity Options:

Institution: Action:
Treasury Direct One can either redeem the security, or use the proceeds to reinvest in another security, of the format, for the same maturity.
Legacy Treasury Direct One can either redeem the security, or use the proceeds to reinvest in another security, of the format, for the same maturity.
Bank/Broker Options vary depending on which bank you have, or who your broker is. In order to understand your options, you must consult your bank or broker.
 

  

Purchase Scenarios:

Scenario What you'll pay:
Yield to maturity is greater than the interest rate The price will be less than the face value
Yield to maturity is less than the interest rate The price will be greater than the face value
Yield to maturity is equal to the interest rate         The price will be equal to the face value
 

 

Where to Purchase?    

        Treasury bills can be bought at a variety of locations, such as at TreasuryDirect or Legacy Treasury Direct. With both of these government programs, there some advantages and disadvantages; of course, TreasuryDirect offers the widest range of options for maturity and buying medium. It's clear that buying treasury bills from a bank or broker offers one the most freedom, but TreasuryDirect keeps the process simple, and allows one to buy these bills online from the comfort of your own home, and they won't charge a brokerage fee.

        One may, as previously hinted, buy treasury bills, notes, bonds, and TIPS through one's bank, or services such as Fidelity and Fmsbonds, but these institutions charge brokerage fees and will therefore decrease one's earnings when it does come time to sell.