Treasury bills, notes, and bonds are examples of default-free securities. Treasury notes (or T-Notes) mature in two to ten years. They have a coupon payment every six months, and are commonly issued with maturities dates of 2, 5 or 10 years, for denominations from $100 to $1,000,000.
Treasury notes and bonds operate differently from a Treasury Bill. A note denotes a security with a date of maturity larger than one year up to ten years. A bond is a security that exceeds ten years in maturity. Notes are offered in lengths of two, three, five, and ten years. Bonds are only offered in a length to maturity of thirty years.
Treasury notes and bonds pay coupon payments every six months including the final date of maturity. For example, if you purchased a $100,000 two-year Treasury note on January 15 2008 at an annual rate of 5%, then your income stream would look like this:
The U.S. government also offers inflation-indexed notes and bonds, also known as TIPS (Treasury Inflation-Protected Securities). They are offered in lengths of five, ten, and twenty years to maturity. While the interest-rate payments stay the same, they are applied to the principal, which is adjusted for inflation every six months.
For more information, see also