Treasury backgrounder

Treasury notes and bonds are debt securities issued by the United States Treasury. They are considered debt instruments because by purchasing them you are loaning money to the Treasury department, which then pays you interest (determined by a “coupon rate”) on a semiannual basis and returns the principal when the bond or note matures on the maturity date. T-bonds and T-notes are also called “fixed-income” securities because of the fixed coupon payment an investor receives while holding the bond or note.

T-notes are issued in maturities of two, three, five, and 10 years; T-bonds have maturities greater than 10 years (e.g., the 30-year Tbond). The minimum bond or note size is $1,000. For example, if you purchased a $1,000 10-year T-note with a 4-percent coupon (the “4-percent note”), you would receive $20 every six months, totaling $40 per year; the $1,000 would be paid back to you on the maturity date 10 years from now. A bond or note’s yield is its coupon payment divided by the price — in this case, $40/$1,000 = 4 percent.
Treasury futures prices indicate a percentage of “par” price, which for any Treasury bond or note is 100. T-bond prices consist of the “handle” (e.g., 100) and 32nds of 100. For example, 98-14 is a price that translates to 98-14/32nds or $984.38 for a $1,000 T-bond. T- notes are priced in a similar fashion, except they can include one-half of a 32nd — for example, 98-14+ is 98- 14.5/32nds, or 984.53 for a $1,000 T-note.