What are the Different Types of Bonds Issued by the U.S. Government?

Having learned about what a bond is, it is time to discuss the biggest and most important bond market in the world: the US bond market.

The U.S. government issues various types of bonds to meet its financing needs and manage the national debt. The primary types of bonds issued by the U.S. Department of the Treasury include Treasury bills (T-bills), Treasury notes (T-notes), and Treasury bonds (T-bonds). Each type of bond has unique characteristics, such as maturity periods and interest payment structures.

Treasury Bills (T-bills):

Maturity: T-bills are short-term securities with maturities of one year or less. Common maturities include 4 weeks, 13 weeks (3 months), 26 weeks (6 months), and 52 weeks (1 year).
Interest: T-bills are sold at a discount to their face value, and the difference between the purchase price and the face value represents the interest earned by the investor. They do not pay periodic interest but are sold at a discount and redeemed at face value at maturity.
Issuance: T-bills are issued through regular auctions.

Treasury Notes (T-notes):

Maturity: T-notes have intermediate-term maturities, typically ranging from 2 years to 10 years. Common maturities include 2 years, 3 years, 5 years, 7 years, and 10 years.
Interest: T-notes pay semi-annual interest to bondholders based on a fixed coupon rate. The interest is paid every six months until the maturity date.
Issuance: T-notes are also issued through regular auctions.

Treasury Bonds (T-bonds):

Maturity: T-bonds have the longest maturities among Treasury securities, typically with maturities of 20 years or 30 years. T-bonds with a 30-year maturity are the most common.
Interest: Similar to T-notes, T-bonds pay semiannual interest to bondholders based on a fixed coupon rate. The interest is paid every six months until the maturity date.
Issuance: T-bonds are issued through regular auctions.

Treasury Inflation-Protected Securities (TIPS):

Maturity: TIPS are designed to protect investors from inflation. They have maturities of 5, 10, or 30 years.
Interest: TIPS pay a fixed interest rate, but the principal amount is adjusted based on changes in the Consumer Price Index (CPI). Interest is paid semiannually.
Issuance: TIPS are issued through regular auctions.