# Treasury Notes: Definition, Maturity Terms, and Buying Guide

> **Definition**
>
> A Treasury note is a U.S. government debt security with a fixed interest rate and a maturity period ranging from two to ten years.

## What Is a Treasury Note?

A Treasury note is a U.S. government [debt security](https://www.investopedia.com/terms/d/debtsecurity.asp) with a fixed interest rate that matures between two to 10 years. Investors can buy them directly from the U.S. government through auctions or from a broker. The interest earned is taxed at the federal level but is exempt from state and local taxes. Treasury notes are different from Treasury bills and Treasury bonds, which have shorter and longer maturities, respectively.

### Key Takeaways

*   Treasury notes are U.S. government securities with fixed interest and maturities of 2 to 10 years.  
    
*   Investors can buy Treasury notes through competitive or non-competitive bids at auctions.  
    
*   Interest on T-notes is paid semiannually and is federally taxable, but not on a state level.  
    
*   Longer maturity T-notes are more sensitive to interest rate changes than shorter ones.  
    
*   The yield curve reflects varying yields of similar bonds, affecting T-note prices and risks.

## How Treasury Notes Function and Their Benefits

Treasury notes come in maturities of two, three, five, seven, and 10 years. They're popular because there's a large [secondary market](https://www.investopedia.com/terms/s/secondarymarket.asp) that makes them liquid.

Interest payments are made every six months. They're tax-exempt at the state and local level but taxed federally, like other Treasury securities..

Treasury notes, bonds, and bills are all [U.S. Treasury](https://www.investopedia.com/terms/u/ustreasury.asp) debt investments. The key difference between them is their length of maturity. For example, Treasury bonds mature between 10 and 30 years, making them the longest-term U.S. debt securities.

## How Interest Rate Fluctuations Impact Treasury Notes

A T-note has more interest rate risk with longer maturities. In addition to credit strength, a note or bond’s value is determined by its sensitivity to changes in interest rates. Most commonly, a change in rates occurs at the absolute level underneath the control of a central bank or within the shape of the yield curve.

Moreover, these fixed-income instruments possess differing levels of sensitivity to changes in rates, which means that the fall in prices occurs at various magnitudes. This sensitivity to shifts in rates is measured by duration and expressed in terms of years. Factors that are used to calculate duration include coupon, yield, present value, final maturity, and call features.

A good example of an absolute shift in interest rates occurred in December 2015, when the [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp) (the Fed) raised the federal funds rate to a range 25 basis points higher. At that time, it had been in the range of 0% to 0.25% but then was changed to 0.25% to 0.50%. This increase in benchmark interest rates has had the effect of decreasing the prices of all outstanding U.S. Treasury notes and bonds.

## Important Considerations When Investing in Treasury Notes

In addition to the benchmark interest rate, elements such as changing investors’ expectations create shifts in the [yield curve](https://www.investopedia.com/terms/y/yieldcurve.asp), known as yield curve risk. This risk is associated with either a steepening or flattening of the yield curve, a result of altering yields among similar bonds of different maturities.

For example, in the case of a steepening curve, the spread between short- and long-term interest rates widens as the long-term rates increase more than the short-term rates. If the short term-rates were to be higher than any of the longer-term rates, it would create a condition known as an inverted yield curve.

Thus, the price of long-term notes decreases relative to short-term notes. The opposite occurs in the case of a flattening yield curve. The spread narrows and the prices of short-term notes decrease relative to long-term notes.

## The Bottom Line

Treasury notes are U.S. government debt securities with fixed interest rates and two- to 10-year maturities, purchased through competitive or noncompetitive bids. They pay interest twice a year, which is taxed at the federal level but is exempt from state and local taxes. Treasury notes differ from other U.S. debt securities, such as Treasury bills and bonds, which have different maturity dates and by maturity, interest rates and risk factors.

> **Article Sources**
>
> 1.  U.S. Department of the Treasury. "[Treasury Securities & Programs](https://www.treasurydirect.gov/indiv/products/products.htm)." Accessed Aug. 8, 2021.
>     
> 2.  U.S. Department of the Treasury. "[Treasury Notes: Tax Considerations](https://www.treasurydirect.gov/indiv/research/indepth/tnotes/res_tnote_tax.htm)." Accessed Aug. 8, 2021.
>     
> 3.  U.S. Department of the Treasury. "[Treasury Bonds: FAQs](https://www.treasurydirect.gov/indiv/research/indepth/tbonds/res_tbond_faq.htm#bid)." Accessed Aug. 8, 2021.
>     
> 4.  U.S. Federal Reserve Board. "[Open Market Operations](https://www.federalreserve.gov/monetarypolicy/openmarket.htm)." Accessed Aug. 8, 2021.