How to Buy U.S. Treasury Bonds, Notes, and Bills

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To buy a 10-year U.S. Treasury, you buy a Treasury note, not a bill. Bills mature in one year or less, and the 10-year security is a note. You can buy it new at a Treasury auction through a TreasuryDirect account, place an auction order through a bank or brokerage, buy an existing note on the secondary market through a broker, or own it indirectly through a Treasury ETF or mutual fund. The same routes work for bills and bonds. The main difference is what happens if you want your money back before maturity: securities held at TreasuryDirect cannot be sold there, while those held at a broker can be sold through that broker.

Bills, notes and bonds: what you are buying

The name of the security depends on its maturity, and the maturity determines how you get paid.

Interest on all of these is subject to federal income tax but exempt from state and local income tax. Savings bonds (Series EE and I) are a separate, non-marketable product. They are also sold on TreasuryDirect, with a $25 minimum and purchases up to $10,000.

Buying directly through TreasuryDirect

TreasuryDirect is the U.S. government website for buying, holding and redeeming Treasuries without a middleman. To open an account you need a valid Social Security Number or Taxpayer Identification Number, a U.S. address and email, and a U.S. checking or savings account. You choose the product and term, buy from $100 upward in $100 increments on a date tied to an upcoming auction, and can have bills, notes and bonds reinvested automatically at maturity. Marketable securities are generally issued to your account within one week of the auction.

TreasuryDirect works well for small quantities and for holding to maturity. A $100 bill costs the same per dollar of face value as a $1 million one, and there is no commission.

How the auction sets your price

Every new Treasury is sold at auction, and the 10-year note is auctioned monthly. Individual investors generally place noncompetitive bids. These guarantee the amount you asked for, up to $10 million, at the yield set by competitive bidders, and they are the only option on TreasuryDirect. Competitive bids state the yield the bidder will accept. They may be filled fully, partly or not at all, and one bidder can win no more than 35% of the offering.

Buying through a bank or brokerage

Major brokerages let customers buy new-issue Treasuries at auction and trade existing ones. A brokerage account gives you three ways in:

• New issues and the secondary market. You can buy an existing note or bill from another holder at the current market price. You don’t have to wait for an auction, and you can pick a specific maturity date. Fees vary by firm, though many large brokers do not charge commissions on Treasury trades. The main advantage is that a bond bought at a broker can be sold through the same account later.
• Treasury ETFs. These trade on stock exchanges like shares. Funds focus on short-term Treasuries, long-term Treasuries, TIPS or FRNs, and many trade commission-free. An ETF has no maturity date, so you never get a fixed face value back on a known day. Its price moves with interest rates for as long as you hold it.
• Treasury money market funds. These hold very short-term government debt. Their fees tend to be low, and their yields are capped by rates on the shortest bills.

Treasuries, Treasury ETFs and money market funds held at a broker can all sit inside an IRA or another tax-advantaged retirement account. That is something TreasuryDirect cannot offer.

Example: buying a 10-year note

Hypothetical figures, for illustration only. Suppose you place a noncompetitive bid for $10,000 face value at a 10-year note auction. The competitive bidding sets a 4% coupon and a price of 99.50 per 100 of face value.

• Cost at settlement: $10,000 × 0.995 = $9,950
• Interest: 4% of $10,000 = $400 a year, paid as $200 every six months
• At maturity: $10,000 returned, plus the final interest payment

Your yield is slightly above 4% because you paid less than face value. The same purchase made on the secondary market a few weeks later would come at whatever the market price is that day. That price could be higher or lower, depending on how rates have moved.

A bill works differently. Hypothetical: a 26-week bill with $10,000 face value bought for $9,800 pays no coupon. The $200 gap between price and face value is your interest, received at maturity.

How to sell, and the exceptions that change the answer

Selling before maturity. If you bought through TreasuryDirect, you must transfer the securities to a bank, broker or dealer before you can sell. Fill out a Transfer Request Form at TreasuryDirect, wait for the securities to arrive at the brokerage, and then place a sell order there. If you plan to sell early, buying at a broker in the first place removes this step. Savings bonds are the exception. They are redeemed electronically inside TreasuryDirect, in full or in part, with the proceeds sent to your linked bank account.

Price risk on early sales. Holding a note to maturity returns its full face value. Selling early means accepting the market price, which falls when interest rates rise. A 10-year note is far more sensitive to rate changes than a 4-week bill. For more on why, see why bond prices fall when interest rates rise.

Inflation. A regular 10-year note pays fixed dollars. If you want protection against rising prices, the 10-year TIPS adjusts its principal for inflation; the U.S. inflation rate by year shows how much that adjustment can matter over a decade.

Size. Below $10 million per auction, noncompetitive bidding is open to anyone eligible. Larger orders must be placed as competitive bids and are subject to the 35% cap.

FAQs

The Bottom Line

Buyers who plan to hold Treasuries to maturity can use TreasuryDirect with no commission and purchases from $100. Anyone who may need the money early, wants an IRA, or prefers to pick an existing maturity is better served by a bank or brokerage, where notes can be sold in the same account. Selling before maturity means accepting the market price, which falls when rates rise.