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Treasury Notes vs Treasury Bonds: What are the Differences, and How to Trade Them?


Treasury Notes vs Treasury Bonds: What are the Differences, and How to Trade Them?

Treasury Notes vs Treasury Bonds: What are the Differences, and How to Trade Them?

Vantage Updated Updated Wed, 2024 January 31 08:50

Treasury notes and bonds share similar structures, but there are two key characteristics that set them apart. Learn how they work, what differences they have, and what types of investing strategies they are built for.

Introduction to Treasury Notes and Bonds

Notes and bonds offer an alternative to other popular securities such as stocks and commodities. They are regarded as lower-risk assets with lower returns, and can help an investor balance out their portfolio and hedge against risk. 

The quality of bonds can differ based on who the issuer is. This is because bonds and notes are debt instruments – an investor buying a bond makes a loan to the issuer of the bond. The issuer, in return, promises to make regular interest payments to the bondholder, and repay the principal sum in full when the bond matures. 

Hence, the ability of the issuer to repay the bond and avoid defaults is a prime factor here. For this reason, bonds and notes issued by trustworthy governments commonly rank in the top for quality and risk. However, there have also been instances where government-backed loans have gone into default, so investors should be discerning when approaching such securities [1]

Like many governments, the U.S. government actively issues bonds and notes (known as Treasury bonds and Treasury notes) and has managed to avoid defaulting on any of its repayments to date [2]. This is why Treasury bonds and notes are regarded as being extremely low-risk – thus explaining their popularity among investors. 

In this article we will focus on Treasury bonds and Treasury notes, the benefits of each, how they differ, and how you can trade them.

What are Treasury notes? [3] 

Treasury notes are fixed-income securities issued by the U.S. government to raise funds for its various operations. 

They pay out a fixed interest – known as the coupon – every six months and these payments last throughout the tenure of the note. When the duration comes to an end (i.e., the note matures), the face value of the note is repaid to the holder.

Investors can choose from five different categories of Treasury notes – 2-year, 3-year, 5-year, 7-year and 10-year notes. All Treasury notes are backed by the U.S. government.

Investors must bid for the right to own Treasury notes through an auction, and notes are sold at USD 100 increments. Depending on factors such as the yield to maturity and the interest rate, the price of the note may be higher, equal to or lower than the face value of the note [4]

Treasury notes may be held until maturity, or sold on the open market before maturity, at the sole discretion of the investor. 

Benefits of Treasury notes

Treasury notes offer a way for investors to generate low-risk returns on their money via loans to the U.S. government. The fixed payment structure of Treasury notes also make them appealing for those seeking to generate steady income from their investments. 

Furthermore, Treasury notes can also be freely traded on the open market, creating the possibility to potentially benefit from interest rate and monetary policy changes, as well as macroeconomic developments. 

While the above is generally true of all debt-based securities, Treasury notes allow investors greater flexibility when pursuing short- to medium-term investment timelines, due to their wide range of tenures available, from two to 10 years. 

What are Treasury bonds?

Treasury bonds are also referred to as “long bonds”, as they have the longest durations out of the different debt securities offered by the U.S. government. Investors can choose between 20- or 30-year Treasury bonds, with no requirement to hold them to maturity. 

Just like with Treasury notes, holders of Treasury bonds will receive interest, paid out every six months. This interest rate is not known beforehand; instead it is only known at auction, as the interest depends on the bids received.

Treasury bonds are issued on a monthly basis, and are sold at increments of USD 100. Note that bonds must be held for a minimum of 45 days before holders can sell them on the open market. The face value of the bond is not guaranteed if sold before maturity – hence investors should consider carefully before selling if the price of the bond is lower than than the face value. 

Benefits of Treasury bonds [5]

Due to their long maturity terms, Treasury bonds are ideal as a form of long-term savings, especially if you’re able to receive higher interest than a bank savings account. You can time their purchase and hold them till maturity, or sell them off when the markets are favourable to unlock your cash. 

As long as you’re holding the bond, you will be receiving the interest payment every six months. This makes for a steady stream of income that you can put to other uses, or simply re-invested in other securities.

Another benefit of Treasury bonds is that they can be used to hedge against risk and buffer volatility in an investment portfolio made up of stocks and equities, owing to the inverse correlation between the two asset classes.

treasury note vs bond

Differences between Treasury notes and bonds


Treasury notes and bonds may be similar in structure, but there is one key difference that sets them apart. 

As mentioned earlier, Treasury notes are available in 2, 3, 5, 7 and 10-year tenures, making them well-suited to short- to mid-term investment timelines. 

In contrast, Treasury bonds are made for far longer investment timelines in mind; they are offered in 20- or 30-year terms, and are thus more geared towards the needs of long-term investors. 

Yes, investors can sell their notes and bonds on the open market after the mandatory holding period has passed, but doing so recklessly is likely to result in a loss. For instance, let’s say you have a 3-year note that pays 2.2% per annum. After one year, a 2-year note that pays 2.5% is launched. 

At this point, your 2.2% per annum 3-year note (which has 2 years left by this point) is less attractive than the new 2.5% per annum 2-year note. Hence, if you wanted to sell your 3-year note, you’d have to offer a lower price. This could result in a net loss.

Thus, while Treasury bonds and notes carry very low risk, that does not mean they do not require proper care and planning.  

Coupon rate

Another important difference between Treasury notes and bonds is the coupon rate, or the interest you will receive. 

Generally speaking, the Treasury bonds will offer higher returns than Treasury notes. This is to make up for the opportunity cost involved in holding longer-term bonds vs shorter-term notes. 

Bear in mind that the coupon rate may not always equal the yield on bonds and notes that are traded on the secondary market. This is because the coupon paid out is a fixed amount, and the yield goes up or down according to the price that bond or note was traded for.

Conclusion: Trade Treasury notes and bonds with Vantage

Reap potential returns from Treasury notes and bonds, without having to take actual ownership with Vantage Contracts-for-Difference (CFDs). Reduce risk by starting as small as one lot size, and trade both long and short positions to potentially benefit from all market conditions. Sign up today!


  1. “7 Things You Didn’t Know About Sovereign Defaults – Investopedia” Accessed 19 Sep 2023
  2. “7 Things You Didn’t Know About Sovereign Defaults – Investopedia” Accessed 19 Sep 2023
  3. “Treasury Notes – Treasury Direct” Accessed 19 Sep 2023
  4. “Understanding Pricing and Interest Rates – Treasury Direct” Accessed 19 Sep 2023
  5. “Treasury Bonds – Treasury Direct” Accessed 19 Sep 2023
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