You need $1,000 for a payment in three months. One Treasury bill repays $1,000 just before the deadline. A Treasury bond repays the same amount in 30 years. Both have the same borrower: the US government.
Does that make them equally useful?
The promise has two parts: how much, and when. Government backing cannot move a repayment date onto your calendar.
One borrower, different payment dates
Bills, notes, bonds and TIPS are marketable Treasury securities: loans to the US government that you can sell to another investor before maturity. US savings bonds cannot be traded this way.
A Treasury bill, or T-bill, is issued for up to one year. It pays no periodic coupon. Treasury sells it below face value or at face value, then repays face value at maturity. Pay $990 for a $1,000 bill and the $10 difference is your interest.
Treasury notes start with terms of 2, 3, 5, 7 or 10 years; Treasury bonds with 20 or 30 years. Both pay fixed coupons every six months and repay face value at maturity. These payments are nominal: set in dollars, with no adjustment for what those dollars can buy.
| Type | Original term | Interest paid | Inflation link |
|---|---|---|---|
| Bills | Up to 1 yr | At maturity | None |
| Notes | 2–10 yr | Every 6 months | None |
| Bonds | 20 or 30 yr | Every 6 months | None |
| TIPS | 5, 10, 30 yr | Every 6 months | Principal adjusts |
An older 10-year note might have just three months left. Its name tells you the term when it was issued, not how long you must wait. The actual maturity date is what matters for your payment.
A floating rate note (FRN) has a two-year term, a rate linked to 13-week Treasury bill rates, and quarterly interest payments.
For fixed-rate Treasuries, the price-yield relationship still applies.
What inflation protection changes
Treasury Inflation-Protected Securities (TIPS) come in 5-, 10- and 30-year terms. Their principal rises with inflation and falls with deflation, following CPI-U, a US consumer-price index, without seasonal adjustments.
The coupon rate stays fixed. Inflation changes the principal that the rate applies to.
The TIPS principal index ratio is the multiplier applied to original principal. Say you hold $1,000 with a fixed 1% annual coupon, and the ratio on a payment date is 1.03000. That means a total 3% adjustment to principal, not just the past six months' inflation.
At a ratio of 1.00000 instead, the payment would be $5.00. The extra $0.15 comes from applying the same rate to $30 more principal.
At maturity, Treasury repays the higher of original or adjusted principal. If the $1,000 TIPS ends with $970 of adjusted principal, Treasury repays $1,000. If it ends at $1,050, Treasury repays $1,050.
Paying a previous owner $1,080 does not create a $1,080 floor. The floor follows the original face value, not your receipt. It applies only at maturity; earlier coupon payments can shrink during deflation, and a sale has no guaranteed price.
CPI-U also measures a broad basket. Your household's costs can rise at a different pace.
Why the 10-year yield gets quoted
The 10-year Treasury note yield is a widely used benchmark for longer-term dollar lending. It moves with market prices; the coupon on an existing note stays fixed. The Federal Reserve influences that yield, but does not directly set it.
This is also the starting point for comparing a company's bond yield: use a Treasury with similar time remaining, then ask what the extra yield compensates for.
For comparisons across Treasury maturities, the yield curve puts the rates side by side.
Safe from which risk?
Treasuries carry the US government's full faith and credit: its promise to pay. Investors treat them as the dollar benchmark for credit risk, the chance a borrower fails to pay. That is the sense in which they are called "risk-free."
A reliable borrower can still issue a bond that loses you money:
- Purchasing power. A nominal Treasury can pay every promised dollar while inflation makes those dollars buy less.
- Selling price. A long Treasury can fall in market value when yields rise; duration measures that sensitivity.
- TIPS prices. TIPS can also lose market value when real (inflation-adjusted) yields rise.
- Reinvestment. When a bill matures, the next bill you buy may offer a lower rate.
For your $1,000 payment in three months, the bill's repayment date fits. The 30-year bond would need to be sold, and Treasury has promised you no particular selling price.
The maturity date also has to leave time for the repayment to reach the account you pay from. For this expense, the repayment date is part of safety.
Corporate bonds and credit ratings add the next check: can the business behind the promise deliver the cash?
In short
- Bills, notes and bonds share a borrower, but deliver cash on different schedules.
- TIPS keep the coupon rate fixed while inflation changes principal and coupon dollars.
- The TIPS maturity floor follows original face value, not your purchase price.
- Government backing does not prevent losses from price changes, inflation or lower reinvestment rates.
- The 10-year yield is a market benchmark, not the return every Treasury holder earns.