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Bonds, Bills, Notes - What's The Difference?

It is no secret that the government is 'making money' literally by issuing debt. As we've discussed on prior posts, when the bank loans money to someone to buy a house they are creating new money for our economy that didn't exist before the loan was created. That's why home buying and home building are a big part of the GDP of our country.


Bonds, Bills and Notes - what is the difference?

I'm an expert on many financial topics (if defined by a lot of time and energy spent working to understand those topics) but I'm no expert here, so I was curious and used AI to help distinguish the difference by definition of Bonds, Notes and Bills.


We know U.S. Department of the Treasury issues various types of debt securities to finance government spending as Treasury bills (T-bills), Treasury notes (T-notes), and Treasury bonds (T-bonds). These securities are considered safe investments because they are backed by the full faith and credit of the U.S. government. Here is what ChatGPT said about each?


Bonds, Bills, Notes - What's The Difference?


1. **Treasury Bills (T-bills)**:

- **Maturity**: Short-term securities that mature in one year or less. Common maturities are 4 weeks, 8 weeks, 13 weeks, 26 weeks, and 52 weeks.

- **Issuance**: Sold at a discount to face value.

- **Interest**: Do not pay interest. Instead, the return on investment is the difference between the purchase price (discounted price) and the face value received at maturity.

- **Purpose**: Often used for short-term liquidity needs.


2. **Treasury Notes (T-notes)**:

- **Maturity**: Intermediate-term securities with maturities ranging from 2 to 10 years.

- **Issuance**: Sold at or near face value.

- **Interest**: Pay semi-annual interest payments, known as coupon payments, at a fixed rate.

- **Purpose**: Suitable for investors seeking stable, predictable income over a longer period.


3. **Treasury Bonds (T-bonds)**:

- **Maturity**: Long-term securities with maturities ranging from 20 to 30 years.

- **Issuance**: Sold at or near face value.

- **Interest**: Pay semi-annual interest payments, known as coupon payments, at a fixed rate.

- **Purpose**: Often used by investors looking for long-term, stable income or to match long-term liabilities.


One thing that really stood out from the chart is the majority of the issances are in the 2-10 year Notes category. Given there is so much talk about this I thought it would be helpful to clarify these differences.


TIP: Overall, the primary differences among these securities are their maturity lengths, how they pay interest, and their purposes. Investors may choose among these securities based on their investment time horizons, income needs, and risk tolerance.

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