All about Bonds - Types of Treasuries

Types of Treasuries

There are four types of treasuries. Treasuries are issued in four classes: bills, notes, bonds and Treasury Inflation Protection Securities (TIPS). Most Treasury issues are non-callable, eliminating early redemption and reinvestment risks.

T-bills

T-bills are issued at a discount and pay accreted interest at maturity.

The interest received is the difference between the discounted purchase price and the par value of the bill at maturity.

T-bills are normally issued in maturities of one, three and six months.

T-notes

T-notes are generally issued in two-, five- and ten-year maturities, and offer a fixed rate of interest (the “coupon” rate).

Interest on T-notes is paid semi-annually.

T-bonds

T-bonds also have a fixed coupon rate and pay out interest semi-annually.

T-bonds are typically issued in 30-year maturities.

TIPS

TIPS are designed to keep pace with inflation, making them particularly attractive during a time when the threat of rising inflation is in the air.

Unlike traditional Treasuries, the principal amount of TIPS is adjusted over the life of the bond based on changes in the Consumer Price Index (CPI-U). This inflation-adjusted principal is paid to investors at maturity.

TIPS are issued in 5-, 10- and 30-year maturities and pay a fixed rate of interest semi-annually (applied to the inflation-adjusted principal amount).

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