Treasury Notes

Treasury notes, also known as T-Notes, are issued with terms of 2, 3, 5, 7 and 10 years and earn a fixed rate of interest every 6 months until maturity. The interest rate and price of a Treasury note are determined at auction. The price may be greater than, less than or equal to the Note's par value. The price of a fixed rate security depends on it's yield to maturity and interest rate.

Sometimes when you buy a Treasury note, you are charged accrued interest, which is the interest the security earned in the current interest period before you took possession of the security. If you are charged accrued interest, the treasury will pay the interest back to you as part of your next semiannual interest payment.

For example, you buy a 10-year Treasury Note issued August 15, 2005 and maturing August 15, 2015. If August 15, 2005 fell on a Saturday, the Treasury would issue the Note on the next business day, Monday August 17, 2005. Besides the purchase price, you would pay Treasury for the interest accrued from August 15 to August 17, 2005. When you get the first semiannual interest payment, it will include the accrued interest you paid.

You can bid for a treasury note in one of two ways:

Noncompetitive bid
You agree to accept the discount rate determined at the bills auction. With this type of bid, you are guaranteed to receive the bill you want and in the full amount you are willing to pay.
Competitive bid
With a competitive bid, you specify the discount rate you are willing to accept. Your bid may be 1) accepted in the full amount you want, 2) accepted in less than the full amount you want if your bid is equal to the high discount rate, or 3) rejected if the rate you specify is higher than the discount rate set at the auction.

Treasury notes are sold in increments of $100. The minimum amount that can be purchased is $100. You have the option to hold the note until it matures, or you can sell it before it matures. Competitive bids can only be placed if you use a bank, broker or dealer. You may place noncompetitive bids on the TreasuryDirect website, bank, dealer or broker. In single auction, you may buy up to $5,000,000 in notes by non-competitive bidding or up to 35% of the initial offering amount by competitive bidding. All Treasury notes are now issued and held electronically.

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