Interest is exempt from state and local taxes, but not from federal tax. Because of their almost total lack of default risk, Treasuries carry some the lowest yields around. Nevertheless, because their safety is so alluring, Treasuries are among the most liquid of debt instruments. The difference reflects the interest you earn. Treasury notes mature in two to 10 years.
Interest is paid semiannually at a fixed rate.
For that reason, they are best held in tax-deferred accounts. Because they pay no coupon, zeros can be highly volatile in price. Like zeros, inflation bonds are best held in tax-deferred accounts. Interest is taxable and is paid monthly, along with a partial repayment of principal. Except for Ginnie Maes, these bonds are not backed by the full faith and credit of the U.S. government.