Treasury notes are intermediate-term debt obligations of the U.S. federal government, issued with maturities of 2, 3, 5, 7, and 10 years. Unlike T-bills, T-notes pay a fixed semiannual coupon at the stated interest rate applied to the $1,000 par value. They are auctioned by the Treasury on a regular schedule and are among the most actively traded securities in the world.
T-notes are backed by the full faith and credit of the U.S. government, making them default-risk-free for practical purposes. Their primary risk is interest rate risk: as market rates rise, T-note prices fall. The 10-year T-note yield is the most closely watched benchmark in global finance, influencing mortgage rates, corporate borrowing costs, and equity valuations.
Like all Treasury securities, T-note interest is taxable at the federal level but exempt from state and local taxes. This exemption makes them particularly attractive compared to corporate bonds for investors in high-tax jurisdictions.
T-notes trade in the secondary market through dealers and on electronic platforms. They are quoted in 32nds of a point (a quote of 98-16 means 98 and 16/32 percent of par, or $985.00 for a $1,000 face value bond). Understanding this pricing convention is essential for the Series 7 exam.
> Exam tip: On the Series 7, be fluent in Treasury price quotations in 32nds. Know that T-notes (and all Treasuries) are exempt from state and local taxes but not federal tax. The 10-year note duration is a critical concept for interest rate sensitivity — longer maturity means greater price volatility.