A Treasury note is 2- to 10-year marketable U.S. government debt with a fixed rate and semiannual interest payments.
A Treasury note (T-note) is a marketable U.S. government debt security issued with a term of 2, 3, 5, 7, or 10 years. Its interest rate is fixed at auction, it pays interest every six months, and it returns face value at maturity. A holder may also sell the note before maturity at the market price then available.
Treasury notes occupy the middle of the Treasury maturity range: they last longer than Treasury bills but not as long as 20- or 30-year Treasury bonds. The 10-year note is also a widely followed benchmark for U.S. interest rates and fixed-income valuation.
Treasury sells notes through auctions. TreasuryDirect accepts noncompetitive bids, under which the bidder agrees to the auction result. Banks, brokers, and dealers may submit competitive or noncompetitive bids. TreasuryDirect currently lists a $100 minimum, $100 increments, a $10 million noncompetitive maximum, and a competitive limit tied to the offering amount. Current rules should be checked before bidding.
The 2-, 3-, 5-, and 7-year notes are generally auctioned monthly. New 10-year notes are generally auctioned in February, May, August, and November, with reopenings in the other months. A reopening adds to an existing CUSIP rather than creating a new security.
When a reopened note’s issue date comes after its dated date, the buyer can owe accrued interest at settlement. That amount compensates for interest that has accumulated since the dated date; the buyer then receives the full next coupon.
The annual coupon rate applies to face value, not the amount paid in the market. A $10,000 note with a 4.25% coupon pays $425 per year, normally as two $212.50 payments, regardless of whether the note later trades for $9,850 or $10,150.
| Relationship at purchase | Typical price | Why |
|---|---|---|
| Market yield above coupon rate | Below par | The lower coupon is offset by a discount |
| Market yield near coupon rate | Near par | Coupon and required return are similar |
| Market yield below coupon rate | Above par | Investors pay a premium for the higher coupon |
Yield to maturity accounts for price, remaining coupons, time to maturity, and repayment of face value under stated assumptions. Current yield uses annual coupon divided by market price and omits the gain or loss as price moves toward face value, so it is not a substitute for yield to maturity.
Suppose an investor buys $10,000 face value of a 5-year note with a 4.25% coupon. The quoted clean price is 98.50, or 98.50% of face value.
$10,000 x 98.50% = $9,850$10,000 x 4.25% / 2 = $212.50$425$425 / $9,850 = 4.31%If accrued interest is $70, settlement cash before fees is $9,920, not $9,850. The 4.31% current yield is incomplete because it ignores accrued interest, coupon timing, and the $150 increase from the clean purchase price to the $10,000 face value at maturity. A yield-to-maturity calculation incorporates those scheduled cash flows but still assumes coupons are paid as expected and reinvested at the calculation’s assumed rate.
The 10-year Treasury yield is frequently used as a reference point for valuing longer-lived cash flows and discussing borrowing costs. It can influence, but does not mechanically determine, mortgage rates, corporate bond yields, equity valuations, or economic activity. Those rates also reflect credit risk, liquidity, optionality, funding costs, and supply and demand in their own markets.
Analysts compare the 10-year yield with shorter and longer Treasury yields to study the yield curve. They also distinguish the newest on-the-run note from older off-the-run issues because liquidity and financing conditions can create small yield differences between otherwise similar maturities.
This article is educational and is not individualized investment or tax advice. It does not recommend a Treasury maturity, purchase channel, or trading strategy.