Treasury Securities (T-Bills, Notes, and Bonds)

Treasury securities are debt issued by the US federal government and sold at auction through TreasuryDirect and brokers. The family divides by maturity: Treasury bills run 4 to 52 weeks, pay no coupon, and are sold at a discount to face value, a $10,000 bill bought for $9,780 returning $10,000 at maturity. Treasury notes run 2 to 10 years and pay a fixed coupon every six months. Treasury bonds run 20 and 30 years with the same semiannual coupons. TIPS adjust their principal with inflation, and Series I savings bonds are the small-denomination cousins.

The backing is the full faith and credit of the United States, which makes the Treasury yield the risk-free rate every other asset is priced against. Interest is exempt from state and local income tax but federally taxable, which matters most in high-tax states. Minimums are $100 at auction, and the secondary market is the most liquid bond market in the world. The 2022-2024 rate cycle briefly made T-bills the best yield on the curve, a rarity that ended as the Fed cut.

The auction is the mechanism. The Treasury announces an offering, competitive and noncompetitive bidders submit, and noncompetitive bidders, which includes every retail investor, receive the security at the auction's average rate. The purchase settles, coupons arrive every six months for notes and bonds, and the principal returns at maturity. T-bills skip the coupon and sell at a discount: the return is the difference between the purchase price and the face value, and the annualized figure is the bond-equivalent yield banks and funds quote against.

The yields form the curve. The short end tracks the federal funds rate almost directly, because bills mature into whatever the Fed sets next; the long end prices decades of growth and inflation expectations. The 2022-2024 cycle produced the rare inversion where 3-month bills out-yielded 10-year notes, and the cuts that followed brought the curve back toward its normal upward slope. Every mortgage, corporate bond, and savings account prices off some point on this curve, which is why the Treasury auction calendar is worth more attention than most market commentary.

The tax treatment is the quiet advantage. Interest is federally taxable in the year received but exempt from state and local income tax, so a 4.5% bill yields its full 4.5% in every state, while the same 4.5% CD yield is cut to roughly 4.1% in an 8% state-tax bracket. The ladder is the standard structure: bills maturing every few weeks or months, rolled at each maturity, convert a cash pile into a schedule of known dates with the risk-free rate attached. Bills can also be sold before maturity at the prevailing price, which is the liquidity edge over a CD's penalty.

Treasury securities matter as the risk-free benchmark and as the actual parking place for money with a deadline. A house down payment, a tuition bill, an emergency fund at scale: money that must be there on a date belongs in the instrument that returns principal on that date with a known yield. T-bill yields have tracked the Fed closely, so cash rates in recent years paid more than the S&P 500's dividend yield in several quarters, an arrangement worth noticing.

I watched a colleague named Brent (yes, that Brent) leave $60,000 of house-down-payment money in a 0.01% checking account for three years while T-bills paid above 5%, a decision he described as keeping things simple. The forgone interest was roughly $9,000, state-tax-free. Simplicity has a price, and the Treasury's auction calendar publishes it weekly.

The highest-leverage thing most Americans can do is match the maturity to the deadline: bills for money needed inside a year, notes for the years beyond, and the ladder as the structure that keeps both rolling. Check the bill yields against savings rates with the savings interest calculator and the discount math with the bond equivalent yield calculator.