Key Takeaways
Direct answer: Treasury securities are debt obligations issued by the U.S. Treasury, sold at auction and, in the marketable forms, tradable before maturity. There are five marketable types: bills (4 to 52 weeks, no coupon, sold at a discount), notes (2 to 10 years, semiannual interest), bonds (20 or 30 years, semiannual interest), TIPS (5, 10, or 30 years, with principal that adjusts for inflation), and floating rate notes (two years, quarterly interest at a rate that resets weekly). They differ in maturity, in how interest is paid, and in what risk each one removes, which means choosing among them is a decision about the job the money has to do, not about which is safest.
- Five marketable types, each with a published, non-negotiable term structure. Nothing about these securities requires interpretation: the terms are stated by the issuer.
- Bills pay no coupon at all. The return is the difference between the discounted purchase price and the face value received at maturity.
- "Marketable" means you can sell before maturity. TreasuryDirect defines it in exactly those words, and it is the feature that distinguishes these from savings bonds.
- The auction is single-price: every successful bidder receives the same rate as the highest accepted bid, whatever they individually bid.
- TIPS adjust principal with the Consumer Price Index and pay a fixed rate on that moving principal, with a floor at maturity so you never receive less than the original principal.
- A floating rate note's rate is an index rate tied to the most recent 13-week bill auction, reset weekly, plus a spread fixed for the life of the note at its first auction. Interest is applied to par daily and paid every three months.
- No credit risk is not the same as no risk. Interest rate risk, inflation risk on nominal issues, and reinvestment risk all remain, and the SEC states plainly that the federal guarantee does not extend to market price before maturity.
- Minimum purchase is 100 dollars for bills, notes, and bonds, in 100 dollar increments.
What Are Treasury Securities?
A Treasury security is a loan to the U.S. federal government, documented as a security with published terms and sold through a public auction. The Treasury issues them to fund government operations and refinance maturing debt. The holder is entitled to the stated payments on the stated dates.
The category that matters for most investors is marketable Treasury securities. TreasuryDirect defines the term without ambiguity: a marketable security is one you can sell before it matures. That single property drives most of the practical differences between Treasuries and other government-backed savings products. It gives the holder an exit, and it also means the holder is exposed to whatever price the market assigns on the day of that exit.
Treasuries occupy a specific place in a portfolio, and it is worth being precise about which risk they remove. They remove credit risk almost entirely: the question of whether the issuer will pay is not, in practice, the risk being managed. Every other bond risk remains. Rates still move the price. Inflation still erodes the real value of a fixed coupon. Coupons still have to be reinvested at unknown future rates. A Treasury security is a bond with the credit variable held near zero and every other variable fully live, which is precisely why it is such a clean instrument for isolating and studying the other risks.
For the underlying contract mechanics that apply to any bond, including Treasuries, see bond basics. For how the price and yield relate, see bond prices and yields.
The Five Marketable Treasury Securities
Each of the five has published, fixed terms. The table below reproduces those terms as stated by TreasuryDirect, verified on 22 August 2026.
| Security | Terms offered | How interest works | Minimum and increment | Primary job |
|---|---|---|---|---|
| Treasury bills | 4, 6, 8, 13, 17, 26, and 52 weeks | No coupon. Sold at a discount or at par; paid face value at maturity. The interest is the difference. | $100, in $100 increments | Short-term cash with essentially no credit risk and minimal rate sensitivity. |
| Treasury notes | 2, 3, 5, 7, and 10 years | Fixed rate, paid every six months until maturity. | $100, in $100 increments | Intermediate-term income and the core of most nominal Treasury allocations. |
| Treasury bonds | 20 or 30 years | Fixed rate, paid every six months until maturity. | $100, in $100 increments | Long-duration exposure, used to lengthen a portfolio's rate sensitivity deliberately. |
| TIPS | 5, 10, and 30 years | Fixed rate paid every six months on a principal that adjusts with the Consumer Price Index, so the dollar payment varies. | $100, in $100 increments | Protecting the real, inflation-adjusted value of principal. |
| Floating rate notes | 2 years | Rate resets weekly: an index rate tied to the most recent 13-week bill auction, plus a spread fixed at the FRN's own auction. Paid every three months. | $100, in $100 increments | Short-duration exposure whose income rises with short-term rates. |
How to read that table as a decision
The five securities are not five points on one quality scale. They are five different answers to "what am I trying not to be exposed to?"
- If the risk you cannot accept is a price move, the answer is short: bills, or an FRN. A 13-week bill has so little time left that a rate move barely changes its value.
- If the risk you cannot accept is inflation, the answer is TIPS. No nominal Treasury protects against it, no matter how short.
- If the risk you cannot accept is falling reinvestment rates, the answer is long: a 20 or 30 year bond locks a rate in for decades, at the cost of large price swings if rates rise.
- If the risk you cannot accept is rising short-term rates leaving your income behind, the answer is the FRN, whose index component resets weekly.
Notice that these prescriptions conflict. Protecting against a price move and protecting against falling reinvestment rates point in opposite directions on the maturity scale. There is no Treasury security that does both, and no amount of research produces one. That trade-off is the actual content of a maturity decision.
How Does the Treasury Auction Set the Rate?
Treasury securities are not priced by a dealer quoting a spread. They are priced by auction, and TreasuryDirect publishes the mechanism.
There are two bidding methods. A non-competitive bidder accepts whatever rate, yield, or discount margin the auction produces, and is guaranteed to receive the amount bid for, up to a maximum of 10 million dollars per auction. A competitive bidder specifies the rate or yield they are willing to accept and may bid for up to 35% of the offering amount, but may receive less than requested or nothing at all. Competitive bids are limited to banks, brokers, and dealers. An individual holding a TreasuryDirect account bids non-competitively only.
The award process runs in a specific order. All compliant non-competitive bids are accepted first. The remainder of the offering is then filled from competitive bids, taken from the lowest rate upward, until the offering amount is exhausted. Then comes the part that surprises people: all successful bidders receive the same rate as the highest accepted bid. A competitive bidder who would have accepted a lower rate still gets the auction's clearing rate. This is a single-price auction, and it is the reason a non-competitive bidder is not penalized for declining to name a number.
The auction output also explains where a security's price comes from. TreasuryDirect states that the interest rate for a particular security is set at the auction, and that the relationship between that coupon and the yield buyers demanded determines whether the security prices at par, at a discount, or at a premium. Its published example is a 7-year note with a 1.461% high yield and a 1.375% interest rate, which priced at 99.429922. The yield exceeded the coupon, so the price fell below par. Nothing else is needed to explain the number.
How Do TIPS Handle Inflation and Deflation?
TIPS solve a problem no nominal bond can solve. A fixed coupon is a fixed number of dollars, and inflation reduces what those dollars buy. Shortening maturity limits the exposure but does not remove it. TIPS remove it by adjusting the principal itself.
TreasuryDirect describes the mechanism precisely. The principal of a TIPS goes up with inflation and down with deflation, adjusted using the Consumer Price Index published by the Bureau of Labor Statistics. The interest rate is fixed and does not change. But because interest is paid on the adjusted principal, the dollar amount of each payment varies with the principal. Inflation therefore raises both the eventual principal repayment and every intervening coupon payment.
The deflation case has an explicit floor, and it is the detail most often missed. TreasuryDirect states that when a TIPS matures, if the principal is equal to or lower than the original amount, the investor receives the original amount. Its own summary is unambiguous: you never get less than the original principal. Deflation can reduce the interim coupon payments, because those are calculated on the adjusted principal, but it cannot reduce the maturity repayment below where it started.
| Scenario | Effect on principal | Effect on each coupon payment | Effect at maturity |
|---|---|---|---|
| Sustained inflation | Adjusts upward with CPI | Rises, since the fixed rate applies to a larger principal | Repayment is the inflation-adjusted principal |
| Flat prices | Unchanged | Unchanged | Repayment is the original principal |
| Sustained deflation | Adjusts downward with CPI | Falls, since the fixed rate applies to a smaller principal | Repayment is the original principal, not the reduced one |
Two limits are worth stating alongside the benefit. TIPS protect against CPI-measured inflation specifically, which may not track any individual household's actual cost increases. And TIPS remain fully exposed to interest rate risk: if real yields rise, the market price of a TIPS falls just as a nominal bond's would. Inflation protection is not price protection. For the market-implied inflation rate that sits between nominal Treasuries and TIPS, see real yields and breakeven inflation.
How Does a Floating Rate Note's Rate Reset?
An FRN's interest rate is the sum of two parts, one that moves every week and one that never moves. TreasuryDirect states both. The index rate is tied to the highest accepted discount rate of the most recent 13-week Treasury bill, and because that bill is auctioned every week, the index rate resets weekly. The spread is set once, at the auction where the FRN is first offered, as the highest accepted discount margin in that auction, and it stays the same for the life of the note.
FRN Interest Rate = Index Rate (most recent 13-week bill, reset weekly) + Spread (fixed at the note's first auction)
Accrual works differently from the other four securities as well. TreasuryDirect states that the rate is applied to the note's par value every day, so the note accumulates interest daily, and the accumulated amount is paid every three months rather than every six.
| Feature | How it works on a Treasury FRN |
|---|---|
| Term | Two years. Original issue auctions fall in January, April, July, and October, with reopenings in the other months. |
| Rate | Index rate plus spread. Only the index component changes, and it changes weekly. |
| Accrual and payment | Interest is applied to par value every day and paid every three months. |
| Minimum and increment | $100, in $100 increments, the same as every other marketable Treasury. |
| STRIPS eligibility | Not eligible. Only notes, bonds, and TIPS can be separated into components. |
What the weekly reset does and does not do
- It carries short-term rate moves straight into your income. A fixed-coupon note issued today pays the same dollar amount for two years no matter what happens next. An FRN's index component follows the 13-week bill auction, so a rising short rate reaches the holder within weeks instead of at the next purchase.
- It compresses price sensitivity without removing it. Because the coupon re-fixes weekly, most of the rate risk a two-year fixed-coupon note carries is simply absent: there is no long stream of below-market payments to discount. What remains is the fixed spread. If buyers begin demanding a wider discount margin than the one locked in at the original auction, the note trades below par to make up the difference. See bond duration explained for why a re-fixing coupon shortens rate sensitivity.
- It gives up the other side of the trade. The mechanism is symmetric, so income falls with the index just as quickly as it rises. An investor who wanted a rate locked in for two years bought the wrong security. This is reinvestment risk arriving continuously rather than all at once at maturity.
- It does nothing about inflation. The index tracks a Treasury bill auction rate, not the price level. Short rates and inflation often move together, but nothing in the FRN's contract ties them. TIPS remain the only Treasury security whose principal adjusts for inflation by contract.
Read against the maturity trade-off above, the FRN and the 30-year bond are opposite answers to one question. The bond fixes a rate for decades and accepts large price swings to do it. The FRN accepts an income stream it cannot predict in exchange for a price that moves far less. Neither is the conservative choice in general. Each is conservative about a different risk.
What Treasury Securities Do and Do Not Protect Against
The single most useful correction in this whole topic is that "backed by the U.S. government" describes one specific protection, not a general one.
| Risk | Protected? | Explanation |
|---|---|---|
| Credit and default risk | Effectively yes | This is the risk the federal backing addresses, and it is why Treasuries function as the reference point for other fixed income pricing. |
| Interest rate risk | No | The SEC states it directly: the U.S. government does not guarantee the market price or value of the bond if you sell before it matures. A 30-year bond can lose substantial market value when rates rise. |
| Inflation risk | Only on TIPS | A nominal Treasury pays fixed dollars. Nothing about federal backing preserves their purchasing power. |
| Reinvestment risk | No | Every coupon and every maturing bill must be redeployed at the rate available on that day, which may be far below the original rate. |
| Opportunity cost | No | Holding an older, lower-yielding security to maturity avoids a realized loss but does not avoid the cost of being locked out of higher current yields. |
| Liquidity risk | Largely, but not entirely | The Treasury market is among the deepest anywhere, but liquidity still varies between recently issued securities and older ones. |
The practical implication: a portfolio built entirely from long Treasury bonds is not a conservative portfolio. It is a portfolio with almost no credit risk and a very large concentrated bet on interest rates. Those are different things, and confusing them has produced real losses for investors who believed the government guarantee covered more than it does.
Worked Example: Matching a Maturity to a Dated Need
This example is hypothetical, built with illustrative rates to isolate one decision. It is not a projection, a rate forecast, or a recommendation.
Suppose an investor needs 50,000 dollars in exactly three years for a known, dated obligation. Three approaches are available, all using Treasury securities, all carrying effectively no credit risk. Assume for illustration that a 3-year note and a 10-year note both yield 3% at purchase.
| Approach | What happens at year 3 | Rate exposure | Reinvestment exposure |
|---|---|---|---|
| Buy a 3-year note and hold it | Par is repaid on schedule. The 50,000 dollars is there. | None that affects the outcome. Interim price moves are irrelevant if held. | Only the six coupon payments need reinvesting. |
| Buy a 10-year note, sell at year 3 | Whatever the market pays that week for a note with seven years left. | Full. This is the entire risk of the approach. | Same six coupons. |
| Roll 13-week bills twelve times | The last bill matures near the date. Principal is intact. | Almost none per bill. | Total. The whole balance is repriced every quarter. |
Now put a number on the middle row, which is where the real lesson is. A 10-year note with a 3% coupon bought at par has seven years remaining at the end of year three. If yields on comparable notes are 5% at that point, the note prices at about 883 dollars per 1,000 of par. On a 50,000 dollar par position, that is roughly 44,155 dollars, a shortfall of nearly 5,900 dollars against the obligation, before counting the coupons received along the way. If yields instead fall to 2%, the same note prices at about 1,065 per 1,000, producing about 53,250 dollars, a surplus.
The credit risk in all three approaches was identical and near zero. The dispersion of outcomes came entirely from the mismatch between the security's maturity and the date the money was needed. That is the point: maturity matching is a risk-management decision, and it is separate from credit quality. The bill-rolling approach shows the mirror image. It has almost no price risk but hands the entire balance back for repricing every quarter, so a sustained fall in short-term rates steadily reduces the income even though the principal is never at risk.
The general rule this illustrates: when a liability has a known date, the maturity that matches that date removes a risk no amount of credit quality can remove. See portfolio construction and asset allocation for how this fits the wider allocation decision.
STRIPS and Zero-Coupon Treasuries
STRIPS are a derivative form of the securities above rather than a sixth type. TreasuryDirect describes them as letting investors hold and trade the individual interest and principal components of eligible Treasury notes, bonds, and TIPS separately. A 10-year note with twenty semiannual coupons plus one principal repayment can be separated into twenty-one distinct instruments, each paying a single amount on a single date.
TreasuryDirect notes that STRIPS are popular with investors who want to receive a known payment on a specific future date, and that they are held and sold only through brokers, dealers, or financial institutions rather than directly through TreasuryDirect.
The behavior follows from the structure. A stripped component has one cash flow, at the end, which makes it a zero-coupon instrument. That concentrates the entire present value at the maturity date and produces the maximum possible interest rate sensitivity for that maturity: a STRIPS has a duration equal to its time to maturity, which no coupon-paying bond of the same maturity can match. It is the most precise tool available for matching a single dated liability, and simultaneously the most volatile Treasury instrument for a given maturity. Those are the same property viewed from two directions. Bond duration explained covers why.
Common Mistakes and Misconceptions
- Reading "government-backed" as "cannot lose money." The backing covers the promised payments. The SEC states that it does not cover market value on an early sale. A long Treasury bond sold after a rate rise can produce a large realized loss.
- Assuming longer Treasuries are safer because the issuer is the same. Issuer quality is identical across the curve. Rate sensitivity is not. A 30-year bond and a 4-week bill share a credit profile and share almost nothing else.
- Expecting nominal Treasuries to protect purchasing power. Only TIPS adjust for inflation. A fixed coupon is a fixed number of dollars whatever prices do.
- Believing TIPS cannot lose value. The deflation floor applies to the principal repaid at maturity. It does not stop a TIPS from falling in market price when real yields rise, and it does not stop interim coupon payments from shrinking when the adjusted principal falls.
- Thinking a non-competitive bid gets a worse rate. The auction is single-price. Every successful bidder receives the same rate as the highest accepted bid, so declining to name a number costs nothing in rate terms.
- Rolling short bills to avoid risk without naming which risk. Rolling bills minimizes price risk and maximizes reinvestment risk. It is a choice between two exposures, not an escape from both.
- Confusing marketable Treasuries with savings bonds. Marketable securities can be sold before maturity. Savings bonds are a separate, non-transferable product with different rules.
Frequently Asked Questions
What are the five types of marketable Treasury securities?
TreasuryDirect lists five: Treasury bills, notes, bonds, Treasury Inflation-Protected Securities (TIPS), and Floating Rate Notes (FRNs). Bills run from 4 to 52 weeks and pay no coupon. Notes run 2, 3, 5, 7, or 10 years and pay interest every six months. Bonds run 20 or 30 years and also pay every six months. TIPS run 5, 10, or 30 years with principal that adjusts for inflation. FRNs run two years and pay quarterly at a rate that resets weekly.
What does it mean that a Treasury security is marketable?
TreasuryDirect defines it directly: a marketable security is one you can sell before it matures. That is what separates marketable Treasuries from savings bonds, which are not transferable. Being able to sell early is a benefit and a risk at the same time, because the sale happens at the market price on that day, which may be above or below what you paid.
How does a Treasury auction decide what rate I get?
TreasuryDirect describes a single-price auction. Non-competitive bids are accepted in full first, then competitive bids are taken from the lowest rate upward until the offering is filled. Every successful bidder then receives the same rate, yield, or discount margin as the highest accepted bid. A TreasuryDirect account holder bids non-competitively, accepting whatever rate the auction produces, with a maximum of 10 million dollars per auction.
How do TIPS protect against inflation?
The principal itself moves. TreasuryDirect states that a TIPS principal goes up with inflation and down with deflation, adjusted using the Consumer Price Index. The interest rate is fixed, but because interest is paid on the adjusted principal, the dollar payment rises and falls with it. At maturity there is a floor: if the principal has fallen to or below the original amount, the investor receives the original amount, so you never get back less than the original principal.
Are Treasury securities risk-free?
No. They carry no meaningful credit risk, which is a different statement. They still carry interest rate risk, and the SEC makes the point explicitly: the U.S. government does not guarantee the market price or value of the bond if you sell it before maturity. Nominal Treasuries also carry inflation risk, because a fixed coupon buys less as prices rise, and reinvestment risk, because maturing principal and coupons must be redeployed at whatever rate exists at the time.
What is the minimum amount needed to buy a Treasury security?
TreasuryDirect states a 100 dollar minimum for bills, notes, and bonds, purchased in 100 dollar increments. The practical constraint for most investors is not the minimum but the auction schedule and the bidding method: a TreasuryDirect account holder places non-competitive bids only, capped at 10 million dollars per auction, while competitive bidding is limited to banks, brokers, and dealers.
How does a Treasury bill pay interest if it has no coupon?
Treasury bills are sold at a discount to their face value and repay full face value at maturity. The interest is the difference between the two, earned as the price converges toward par rather than paid out along the way. This is why a bill's return is quoted as a discount rate or an investment rate rather than a coupon: there is no periodic payment to express as a percentage of par. It also means the entire return is realised at maturity or at sale, not in instalments.
Is interest on Treasury securities exempt from state and local income tax?
In the United States, interest paid on Treasury securities is subject to federal income tax and is exempt from state and local income taxes. That exemption applies to the interest, not to any capital gain realised by selling before maturity. Because the size of the benefit depends on a holder's own state and situation, comparing a Treasury yield to a taxable alternative requires converting one to the other on an after-tax basis rather than reading the two headline yields side by side. Tax rules change, so verify current treatment before relying on it.
What is the difference between buying Treasuries at TreasuryDirect and buying them through a broker?
TreasuryDirect is the government's own platform, where securities are bought directly at auction and held in an account with the Treasury. A broker gives access to both new auctions and the secondary market, where existing securities trade at whatever price the market sets. The practical differences are the range of maturities available at any moment, whether a position can be sold before maturity, and whether the holding sits alongside the rest of a portfolio for reporting. Secondary market purchases also involve a dealer spread that an auction purchase does not.
References
Every term stated in this guide was retrieved from the issuer's own publications and verified on 22 August 2026. Treasury terms and auction rules are time-sensitive: confirm current terms at the source before acting.
- TreasuryDirect: Treasury Marketable Securities: the five marketable types, the definition of "marketable" as sellable before maturity, and the description of STRIPS as separately tradable interest and principal components held only through brokers, dealers, or financial institutions.
- TreasuryDirect: Treasury Bills: terms of 4, 6, 8, 13, 17, 26, and 52 weeks, sale at a discount or at par, payment of face value at maturity, and the 100 dollar minimum and increment.
- TreasuryDirect: Treasury Notes: terms of 2, 3, 5, 7, and 10 years, interest every six months, and the 100 dollar minimum and increment.
- TreasuryDirect: Treasury Bonds: terms of 20 or 30 years, interest every six months, and the 100 dollar minimum and increment.
- TreasuryDirect: TIPS: terms of 5, 10, and 30 years, CPI-based principal adjustment, fixed rate paid on adjusted principal, and the maturity floor at the original principal.
- TreasuryDirect: Floating Rate Notes: the two-year term, the index rate tied to the highest accepted discount rate of the most recent 13-week bill and reset weekly, the spread set as the highest accepted discount margin at the note's first auction and fixed for its life, daily application of the rate to par value with payment every three months, the 100 dollar minimum and increment, the January, April, July, and October original issue schedule with reopenings in other months, and the fact that FRNs are not eligible for STRIPS.
- TreasuryDirect: How Auctions Work: competitive and non-competitive bidding, the 10 million dollar non-competitive maximum, the 35% competitive limit, and the single-price rule that all successful bidders receive the highest accepted bid's rate.
- TreasuryDirect: Understanding Pricing and Interest Rates: the discount, par, and premium rule, and the 7-year note auction print of 99.429922 at a 1.461% high yield against a 1.375% interest rate.
- SEC Office of Investor Education and Advocacy: Investor Bulletin, Fixed Income Investments, When Interest Rates Go Up, Prices of Fixed-Rate Bonds Fall: the statement that even U.S. government-guaranteed bonds carry interest rate risk because the government does not guarantee market price before maturity.
The maturity-matching example uses illustrative yields chosen to demonstrate the mechanism. The prices shown are original calculations produced by standard semiannual discounting on those stated inputs, not market quotes or forecasts. This is educational content, not personalized investment or tax advice.