Treasury notes are coupon bonds with a maturity ranging from 2 to 10 years. They are issued in denominations of $100 to $5 million and pay interest semiannually (twice a year). Treasury notes are non-callable, guaranteeing the holder the stated yield to maturity.
Treasury bonds are coupon bonds with maturities from 10 to 30 years. Like Treasury notes, they are issued in denominations that range from $100 to $5 million and pay interest semiannually (twice a year). Unlike Treasury notes, however, Treasury bonds may have a call feature. This means that the issuer (the Treasury) could decide to “call” the bonds and force investors to redeem the bonds prior to maturity. As a rule, this only occurs if interest rates are declining. In a declining interest rate environment, an issuer may decide it can save money by calling (paying off) existing bonds with a high interest rate and issuing news bonds at a lower interest rate, thereby saving the issuer money. Prior to 1985, the Treasury issued bonds with a 5- or 10-year call feature, and while it has not issued any more of these since, it is not precluded from doing so in the future.
The 30-year Treasury bond is often called the “long bond” by traders because it has the longest maturity of government bonds. It serves as a benchmark of long-term financing in the U.S. and an indicator of the direction of interest rates.
