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Glossary

Treasury notes

Category — US Bond Market
Treasury notes (T-Notes) are coupon securities from the US Treasury with an average term of 1-10 years and a fixed rate. The maturity of treasury notes can be two, three, or five years.

The main difference between T-notes and Treasury bills is that the former are coupon securities. Denominations of the coupon range from USD 1,000 to 1 million and are paid semi-annually.

Treasury notes are an important asset. 10-year treasury notes are the most frequently cited security for assessing the US government bond market dynamics. They also reflect the market situation relative to macroeconomic expectations.

Also, notes are the safest asset in the market for medium and long-term obligations. For this reason, they have lower yields than corporate or government bonds with similar maturity.

Investors can purchase treasury notes at an auction when there is a new issuing or on the secondary market if securities are already in circulation. For purchasing Treasury notes through brokerage firms and commercial banks, there is a commission. Its size depends on the par value of the purchased securities and the set margin.

To avoid commissions, an investor can purchase newly issued securities directly from the Federal Reserve Banks.

The auctions for new treasury note issues are held regularly. For this, there is a specialized piece of software for online purchase from the US Treasury. All relevant information about the Treasury securities’ auctions is published on the Bureau of the Fiscal Service website.

Treasury notes are available through competitive and non-competitive bids. In a competitive bidding option, investors specify the desired yield but put themselves at risk of their rate not being approved. With a non-competitive bid, investors accept any yield offered at the auction.
Interest payments on treasury securities are exempt from state taxes.

If an investor decides to sell their treasury notes before their maturity date, the selling process takes place on the secondary market. If the securities were purchased through the Fed, the investor would need to fill out a special transfer asset form. In this case, the securities are transferred from the investor’s account in the Treasury Reserve book-entry system to the commercial one. The investor can then sell their treasury notes.

If you sell treasury notes on the secondary market, you should do it through a bank or brokerage firm.
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