What are 10 Year Treasury Notes
10 Year Treasury notes are an intermediate debt security fixed with a 10-year maturity date although they can also have 2, 3, 5, or 7-year maturity’s as well Intermediate debt obligations (lasting 2 to 10 years). In this period investors will be paid interest every 6 months. This interest rate is used by almost all other financial institutions to determine their rates.
What are 10 Year Treasury Notes Overview
Treasury notes are sold in $1000 denominations (the face value of said note). Investors who purchase 10-year treasury notes are essentially loaning the US government money in return for interest payments twice a year (every 6 months) throughout the maturity period and when the note does indeed mature the investor will receive their principal (the original sum the investor put into the purchase of said note) or the notes face value.
10 Year treasury notes come with many benefits such as the fact that they are backed up by the US Government making them one of the safest investments available as the Government is very unlikely to collapse/default. Like other federal securities, 10-year treasury notes are exempt from state and local income tax and only taxable at the federal level but they have less than fantastic returns, are better to invest in other companies or stocks, not worth the money or time.
Note that institutions buy the most treasury notes. Individual investors like you or me can purchase 10-year treasury notes directly from the government through a bidding process on the treasury direct website or indirectly through a bank or broker. Although, there is no minimum ownership term for 10-year treasury notes so investors can sell their treasury notes well before the maturity date whenever they want.
Overall, an investor should know that a 10-year treasury note is an intermediate debt security sold by the US government with a maturity date of 10 years. In this maturity period, the investor(s) will be paid interest at a given rate semi-annually and will receive the principal of the note when the note matures. Subsequently, there is no minimum ownership term for 10-year treasury notes giving investors the leisure to sell their notes whenever they please.
Understanding Treasury Notes
There are 3 different types of debt obligations the US government issues. There are Treasury Bills, Treasury Notes, and Bonds. Each one is defined by the amount of time needed to meet its financial obligations. Out of all the 3, treasury bills have the shortest maturities only lasting up to a year (they are offered with 4, 8, 12, 26, or 52 weeks maturities).
What differentiates T-bills from Treasury bonds and notes is the fact that they are issued at a discount and do not pay interest as they are zero-coupon bonds: offering full face value at the end of the maturity but no interest during the period of maturity.
Terms and Tracking
T-Note has up to 10-year terms and other lengths of maturity may include 2, 3, 5, and 7 years. However, both 10-year notes and those of shorter maturity pay semi-annual coupon payments (interest payments). It is important to note that the 10-year note is tracked government debt instrument and it is often used as a bellwether for interest rates for other financial institutions.
The Advantages of Investing in Treasury Notes
The interest payments received for owning a 10-year note are excluded from state and local income taxes but they are still taxable at a federal echelon. These notes are sold to investors indirectly through a bank or broker or directly from the Treasury Direct website through competitive and non-competitive bidding with a bid of $100 increasing in increments of $100 after the initial bid.
Note that there is no minimum ownership term so investors can sell their 10-year treasury notes before the maturity date. T-notes of shorter maturities are sold every month but those that are 10-year treasury notes are issued only in February, May, August, & November (origination months). These notes have re-openings in the remaining months of the year. Said reopening’s are 10-year notes that are issued with the same maturity dates and interest rates as those of which that are issued in the origination months.