Definition of 10-year treasury note

What is a 10-year treasury note?

The 10-year Treasury note is a debt obligation issued by the United States government with a maturity of 10 years from the initial issue. A 10-year Treasury note pays interest at a fixed rate once every six months and pays the face value to the holder at maturity. The United States government is partially financed through the issuance of 10-year Treasury notes.

Understanding 10-Year Treasury Notes

The US government issues three different types of debt securities to investors, defined by the duration of maturity, in order to finance their obligations: Treasury bills, Treasury notes, and Treasury bonds. Treasury bills (Treasury bills) have the shortest maturities, lasting only one year. The Treasury offers treasury bills with maturities of four, eight, 13, 26 and 52 weeks.

What makes Treasury bills unique compared to Treasury Notes or Treasury Bonds is that they are issued at a discount to par and do not pay coupons. Investors are only paid the face value of the Treasury bills at maturity, making them zero coupon bonds.

Conditions and follow-up

Treasury notes (T-notes) are offered up to 10-year terms, so the 10-year T-note is the one with the longest maturity. Other maturities for Treasury notes are two, three, five, and seven years. 10-year Treasury notes and shorter-maturing notes pay semi-annual coupon payments and are not zero coupon debt instruments. The 10-year T-note is the most financially tracked government debt instrument, and its performance is often used as a benchmark for other interest rates, such as mortgages. Treasury bonds (T bonds), like T bonds, pay semi-annual coupon payments, but are issued on 30-year terms.

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Below is a graph of the 10-year Treasury yield from March 2019 to March 2020. During this one-year period, the yield steadily declined with the expectation that the Federal Reserve would keep interest rates low. and possibly cut them even further. In late February 2020, the yield began to accelerate its decline as concerns about the economic impact of the coronavirus pandemic began to rise dramatically. When the Fed took emergency action to cut rates by 50 basis points in early March, the decline in the 10-year yield accelerated further, falling below the psychologically important 1.00% level for a new all-time low. From there, the yield fell to a low of 0.36% before picking up.

Image by Sabrina Jiang © Investopedia 2021

The Advantages of Investing in Treasury Notes

An advantage of investing in 10-year Treasury notes and other federal government securities is that interest payments are exempt from state and local income taxes. However, they are still taxable at the federal level. The US Treasury sells 10-year T-notes and shorter maturity notes, as well as T-notes and bonds, directly through the TreasuryDirect website through competitive or non-competitive tenders, with a minimum purchase of $ 100 and in $ 100 increments. They can also be purchased indirectly through a bank or broker.

Investors can choose to hold the Treasury notes until maturity or sell them early on the secondary market. There is no minimum term of ownership. Although the Treasury issues new T-Notes with shorter maturities each month, the new 10-year T-Notes are issued only in February, May, August and November (the source months), with reopening in the remaining months of the year. The reopens are 10-year T-Notes issued with the same maturity dates and interest rates as the securities corresponding to the months of origin. All T-notes are issued electronically, which means that investors have no real paper that reflects the values, similar to stocks.

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Mark Holland

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