10-Year Treasury Note

What Is a 10-Year Treasury Note?

The 10-year Treasury note is a debt obligation issued by the United States government with a maturity of 10 years upon initial issuance. A 10-year Treasury note pays interest at a fixed rate once at regular intervals and pays the face value to the holder at maturity. The U.S. government partially funds itself by giving 10-year Treasury notes.

Understanding 10-Year Treasury Notes

The U.S. government issues three different types of debt securities to fund its obligations: Treasury bills, Treasury notes, and Treasury bonds. Bills, bonds, and notes are distinguished by their length of maturity.

Treasury bills (T-bills) have the shortest maturities, with durations as long as a year. The Treasury offers T-bills with maturities of four, eight, 13, 26, and 52 weeks. Treasury notes have maturities going from a year to 10 years, while bonds are Treasury securities with maturities longer than 10 years.

Treasury notes and bonds pay interest at a fixed rate like clockwork to maturity, and are then reclaimed at par value, meaning the Treasury repays the principal it borrowed.

In contrast, T-bills are issued at discounts to par and pay no coupon payments. The interest earned on T-bills is the difference between the face value repaid at maturity and the purchase price paid.

The 10-Year Note Yield as a Benchmark

The 10-year T-note is the most widely tracked government debt instrument in finance. Its yield is often utilized as a benchmark for other interest rates, similar to those on mortgages and corporate debt, though commercial interest rates don't track the 10-year yield exactly.

Below is a chart of the 10-year Treasury yield from March 2019 to March 2020. Over that span, the yield steadily declined with expectations that the Federal Reserve would maintain low interest rates or cut them further. In late February 2020, the decline in yield accelerated in the midst of developing worries about the economic effects of the COVID-19 pandemic. As the Fed arranged an emergency rate cut of 50 basis points toward the beginning of March, the decline of the 10-year yield accelerated even further, with the yield dropping to 0.32%, a record low, before bouncing back.

The Advantages of Investing in Treasury Notes

Fixed-income securities offer important portfolio diversification benefits, on the grounds that their returns are not correlated with the performance of stocks.

Government debt and the 10-year Treasury note in particular is viewed as a relatively safe investment, so its price often (but not dependably) moves contrarily to the trend of the major stock-market indices. In a recession, central banks tend to lower interest rates, which lowers the coupon rate on new Treasuries and, subsequently, makes more established Treasury securities with higher coupon rates more alluring.

Another advantage of investing in 10-year Treasury notes and other federal government securities is that the coupon payments are exempt from state and nearby income taxes. In any case, they are still taxable at the federal level. The U.S. Treasury sells 10-year notes and those with shorter maturities, as well as T-bills and bonds, directly through the TreasuryDirect website by means of competitive or noncompetitive bidding, with a base purchase of $100 and in $100 increments. Treasury securities can likewise be purchased through a bank or broker.

Investors can decide to hold Treasury notes until maturity or sell them right off the bat in the secondary market. There is no base holding term. Although the Treasury issues new T-notes of shorter maturities consistently, new 10-year notes are issued exclusively in February, May, August, and November. In other months, the Treasury sells additional 10-year notes from the most recent issue in what is known as a re-opening. Re-opened notes have a similar maturity date and coupon interest rate as the original issue, but a different issue date and a purchase price reflecting subsequent change in market interest rates.

All T-notes are issued electronically, meaning investors cannot obtain paper certificates. Series I Savings Bonds are the main Treasury securities currently issued in paper form, and they must be bought in paper form with the proceeds of a tax refund.