What Is a Treasury Bond? U.S. Treasury Bonds Explained
By Markets & Investing DeskUpdated Nov 10, 2026
Definition
A Treasury bond is a U.S. government debt security with a 20 or 30 year maturity that pays fixed interest every six months and repays its face value at maturity.
Key takeaways
- Treasury bonds are the longest-dated securities the Treasury sells, issued in 20-year and 30-year terms and in denominations as small as $100.
- Interest is taxable at the federal level but exempt from state and local income tax.
- Prices move opposite to interest rates, and long maturities make T-bonds especially sensitive to rate changes.
A Treasury bond (T-bond) is a marketable debt security issued by the U.S. Department of the Treasury with a maturity of 20 or 30 years. It pays a fixed rate of interest every six months and returns its face value at maturity. Because the U.S. government backs it with its full faith and credit, including its power to tax, investors treat a T-bond as essentially free of default risk. That protection covers default only. A T-bond’s market price can still move substantially before it matures.
How a Treasury Bond Works
The Treasury sells new bonds at scheduled auctions. Bidders choose one of two routes:
- Noncompetitive bid: you agree to accept whatever yield the auction sets, and you are guaranteed to receive the bond. The limit is $5 million per auction.
- Competitive bid: you state the yield you are willing to accept. Your bid is filled only if that yield is at or below the rate the auction settles on. A single bidder can buy up to 35% of the offering this way.
The auction sets the bond’s yield, and the coupon rate is fixed from it. Depending on where the auction clears, the bond is sold at par (face value), at a slight discount, or at a slight premium. From then on, the bondholder receives half the annual coupon every six months until maturity. At maturity, the Treasury repays the face value.
After issuance, T-bonds trade through banks and brokers in a large, active secondary market, so a holder who needs cash before maturity can usually sell, though at the current market price rather than the price originally paid.
Interpreting a Treasury Bond
Three figures describe a T-bond, and they answer different questions:
- Coupon rate: the fixed annual interest as a percentage of face value. It never changes.
- Price: what the bond trades for today, quoted as a percentage of face value.
- Yield: the return implied by buying at today’s price. Yield to maturity assumes you hold until the final payment.
Price and yield move in opposite directions. Suppose newly issued bonds offer higher rates. An existing bond with a lower coupon then has to fall in price until its yield matches the market. When rates fall, older bonds with higher coupons rise in value. The longer the remaining maturity, the larger the price change for a given move in rates, so a 30-year bond swings more than a 2-year note.
Treasury yields across all maturities form the yield curve, which usually slopes upward because longer maturities pay more for tying up money longer. When long-term yields drop below short-term yields, the curve is inverted, which has historically been read as a possible signal of recession.
Why Is a Treasury Bond Important?
Treasuries are the reference point for the rest of the bond market. Because their default risk is treated as negligible, their yields serve as the baseline risk-free rate. Corporate bonds, mortgages and other debt are priced at a spread above Treasuries of similar maturity. The long end of the curve, set by 20-year and 30-year bonds, anchors long-term borrowing costs.
Individual investors use T-bonds in several ways:
- to keep part of a retirement portfolio out of credit risk
- to lock in a known income stream for decades
- to set aside money for a future expense with a fixed date
Institutions such as pension funds and insurers use long Treasuries to match long-dated liabilities.
Example of a Treasury Bond
Hypothetical example for illustration; not current market terms.
An investor buys a newly issued 30-year Treasury bond with a $1,000 face value and a 4% coupon at par.
- Annual interest: 4% × $1,000 = $40
- Each semiannual payment: $40 ÷ 2 = $20, paid 60 times over 30 years
- At maturity: the investor receives the $1,000 face value plus the final $20 coupon
Holding to maturity, the investor collects $1,200 in interest plus the $1,000 principal, whatever happens to rates in between.
Now suppose market yields on comparable bonds change immediately after purchase. Discounting the same 60 payments and principal at the new semiannual rate gives these approximate prices:
| Market yield | Approximate price |
|---|---|
| 3% | $1,197 |
| 4% | $1,000 |
| 5% | $845 |
A one-point rise in yields would cut the bond’s market value by roughly 15%. A one-point fall would raise it by about 20%. The cash flows are identical in every case; only the rate used to value them has changed. The loss or gain matters only if the bond is sold before maturity.
Treasury Bonds vs. Other Treasuries
The Treasury issues several types of marketable securities, and they differ mainly by maturity and how they pay:
| Security | Maturity | How it pays |
|---|---|---|
| Treasury bills | One year or less | Sold at a discount; face value paid at maturity, no coupon |
| Treasury notes | 2 to 10 years | Fixed semiannual coupon |
| Treasury bonds | 20 or 30 years | Fixed semiannual coupon |
| TIPS | 5, 10 or 30 years | Principal adjusts with inflation; fixed rate applied to adjusted principal |
| Floating rate notes | 2 years | Interest resets with short-term bill rates |
Several other products are often confused with T-bonds:
- U.S. savings bonds (Series EE and I) are also Treasury debt. They cannot be traded, so their value does not rise or fall with market rates.
- Municipal bonds are issued by state and local governments. They often carry federal tax advantages but also some credit risk.
- Treasury bond funds and ETFs hold a rolling portfolio of Treasuries and usually never mature. Their share value tracks the market price of the holdings, so a fund offers no guaranteed return of principal on a set date.
Limitations of a Treasury Bond
- Interest rate risk. Long maturities amplify price changes, so investors who sell before maturity after rates have risen can realize significant losses.
- Inflation risk. The coupon is fixed in dollars. If inflation runs above the bond’s yield, the real value of both the interest and the principal shrinks over 20 or 30 years. TIPS address this risk; standard T-bonds do not.
- Lower expected returns. Investors accept less return in exchange for safety. Over long periods, T-bonds have generally been expected to return less than stocks.
- Reinvestment risk. Coupons received when rates are low must be reinvested at those lower rates.
How to Buy Treasury Bonds
You can buy new T-bonds directly from the government through a TreasuryDirect account by placing a noncompetitive bid. Bonds held in TreasuryDirect must stay there for at least 45 days before they can be transferred to a broker for sale. You can also buy at auction or in the secondary market through a bank or brokerage. Some investors prefer a fund that holds long-term Treasuries, whose net asset value replaces an individual bond’s fixed maturity value.
The Bottom Line
Treasury bonds suit investors who want decades of predictable income with essentially no default risk, such as retirees and pension funds matching long-dated liabilities. Holding to maturity locks in every coupon and the full face value. Anyone who may need to sell early should expect large price swings when rates move, and anyone worried about inflation should consider TIPS, since a standard T-bond's fixed payments lose real value over time.
