10-years treasury note: Meaning & risk

Definition

A 10-year treasury note, often referred to simply as “T-note” or “T-bond,” is a type of U.S. treasury security with a maturity period of 10 years.

What is a 10-years treasury note?

A 10-years treasury note is issued by the United States Department of the Treasury to raise funds to finance government spending and operations.

The U.S. Treasury regularly auctions off 10-year treasury notes to investors, including individuals, institutions, and foreign governments. These auctions typically occur on a regular schedule, with varying amounts offered depending on the government’s borrowing needs.

Investors who purchase 10-year treasury notes receive interest payments, known as coupon payments, semi-annually until the note reaches maturity. The interest rate is fixed at the time of issuance and remains constant throughout the life of the note.

As the name suggests, 10-year treasury notes have a maturity period of 10 years. At the end of this period, the U.S. Treasury redeems the note at its face value. Investors receive the principal amount they originally invested, in addition to the final interest payment.

U.S. Treasury securities, including 10-year treasury notes, are considered among the safest investments available in the market. They are backed by the full faith and credit of the U.S. government, which means there is virtually no risk of default. As a result, treasury securities are often viewed as a benchmark for risk-free rates of return.

Example of a 10-years treasury note

ABC Investor decides to purchase a 10-year treasury note. The note has a face value of $1,000 and a fixed annual interest rate of 2%.

ABC Investor buys the treasury note for its face value of $1,000. This means they will receive $20 in interest payments per year ($1,000 x 2%).

Over the next 10 years, ABC Investor receives semi-annual interest payments of $10 each ($20 / 2) for a total of $100 in interest per year.

After 10 years, the treasury note matures. ABC Investor receives the final interest payment and gets back the original principal amount of $1,000 from the U.S. Treasury.

In total, ABC Investor receives $200 in interest payments over the life of the note plus the $1,000 principal, providing a total return of $1,200.