Long-Term Vs. Short-Term Treasury Bonds

By: Mike Parker

When it comes to a safe place to invest your money, it's hard to beat U.S. Treasury securities. Treasury bills, notes and bonds are backed by the full faith and credit of the United States government. Low minimum purchases and a large and liquid market add to the attractiveness of both long-term and short-term U.S. government bonds as investment options, but there are differences you should consider.


U.S. Treasury securities include short-term, intermediate-term and long-term securities. Treasury bills, commonly referred to as T-bills, are short-term securities that mature in 52 weeks or less. Treasury notes, or T-notes, are intermediate-term securities that have maturities of between two and 10 years. Treasury bonds are long-term government securities with maturities of 30 years.


You buy T-bills at a discount from their face amount. T-bills don't pay a regular interest payment but increase in value as they mature. You cash them in for their full face value upon maturity. The original purchase price and interest rate for both T-notes and Treasury bonds is determined at auction. You might buy T-notes or Treasury bonds at a premium or discount from its face value. Both T-notes and Treasury bonds pay a fixed rate of interest every six months and mature at full face value. Long-term bonds tend to pay higher interest rates than shorter-term Treasury securities.


The interest earned on Treasury bills, notes and bonds is fully taxable as income on your federal income tax return in the year you receive it. The interest on short-term, intermediate-term and long-term U.S. Treasury bonds is exempt from state and local income taxes. If you have your bills, notes or bonds held by the government's TreasuryDirect service, you can have the service withhold a portion of your interest for income tax purposes.

Market Price

U.S. Treasury bills, notes and bonds are actively traded in the secondary market, where the current price might be more or less than the security's face value; it also may be more or less than you paid for the security. The market price of bonds tends to move in the opposite direction of prevailing interest rates. Since long-term Treasury bonds have greater exposure to interest rate fluctuations, they tend to be more sensitive to swings in prevailing rates. There is less risk of price fluctuations with shorter-term government securities.

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About the Author

Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.

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