Treasury bonds are long-term debt securities issued by the U.S. federal government, with maturities of either 20 or 30 years. You lend the Treasury money, it pays you a fixed interest rate every six months, and at the end of the term you get your principal back. Because the full faith and credit of the U.S. government stands behind every payment, Treasury bonds carry about as little credit risk as any investment on the market. The long maturity is where the real tradeoffs show up.
How a Treasury Bond Pays You
When you buy a Treasury bond, the interest rate is set at auction and locked in for the life of the bond. That rate is called the coupon. A $10,000 bond with a 5% coupon pays $250 every six months, year after year, until the bond matures and the Treasury returns the full $10,000.
Two terms are available: 20 years and 30 years, making these the longest-maturity marketable securities the Treasury issues.1TreasuryDirect. Treasury Bonds The minimum purchase is $100, with additional amounts in $100 increments. Paper certificates are gone; bonds are issued only in electronic form.
The coupon never changes, but the bond’s market price does. When interest rates rise after you buy, newer bonds pay more than yours, and your bond’s resale value falls. When rates drop, your bond is worth more than fresh issues and its price rises. None of that touches you if you hold to maturity. You still receive the face value on the final day no matter what rates did along the way.
How Treasury Bonds Differ From Bills and Notes
Treasury bonds sit at the long end of a three-part lineup. Knowing where each one fits helps confirm you’re looking at the right security.
- Treasury bills mature in 4 to 52 weeks and pay no coupon. You buy them at a discount and collect the face value at maturity; the difference is your return.2TreasuryDirect. Treasury Bills
- Treasury notes mature in 2, 3, 5, 7, or 10 years and pay fixed interest every six months, like bonds, but their shorter duration makes their prices less jumpy when rates move.3TreasuryDirect. Treasury Notes
- Treasury bonds run 20 or 30 years and typically carry the highest coupon rates of the three because investors want more compensation for locking money up for decades.1TreasuryDirect. Treasury Bonds
TIPS: The Inflation-Protected Version
Treasury Inflation-Protected Securities are a related but separate product worth knowing about before you commit to a conventional long bond. A regular T-bond pays a fixed coupon on a fixed face value, so steady inflation over 20 or 30 years quietly eats away at the real value of each payment. TIPS adjust the face value in step with the Consumer Price Index, so your coupon payments rise with prices.4TreasuryDirect. Treasury Inflation-Protected Securities (TIPS)
TIPS come in 5-, 10-, and 30-year terms with the same $100 minimum. Their coupons start lower than those on comparable fixed-rate bonds, so you give up some nominal yield in exchange for the inflation adjustment. For investors whose main goal is protecting purchasing power across decades, that trade can be the better one.
How to Buy a Treasury Bond
TreasuryDirect
The most direct path is TreasuryDirect, the Treasury Department’s own online platform.5TreasuryDirect. Home – TreasuryDirect Opening an account requires a valid Social Security number and a U.S. address.6eCFR. 31 CFR 363.11 – Who Is Eligible to Open a TreasuryDirect Account? There are no fees.
Both 20- and 30-year bonds are auctioned every month.7U.S. Department of the Treasury. Tentative Auction Schedule Most individual buyers submit a non-competitive bid, which means you accept whatever yield the auction produces and are guaranteed to receive the bonds you asked for. The non-competitive cap is $10 million per auction.8eCFR. 31 CFR 356.12 – What Are the Different Types of Bids and How Do They Work?
Brokerage Accounts
You can also buy Treasury bonds through a standard brokerage, and that’s the only way to purchase bonds on the secondary market, where you’re buying from another holder rather than at auction. Some brokers charge a transaction fee; others now offer commission-free Treasury trades. A brokerage account also makes it easier to sell later, since the bond is already in a system built for trading.
Selling Before Maturity
You aren’t locked in for 20 or 30 years. Treasury bonds are among the most liquid securities in the world, and the gap between buy and sell prices is typically narrow compared with corporate bonds.
A bond held in TreasuryDirect has to sit for at least 45 days after purchase before you can sell or transfer it.9TreasuryDirect. Selling a Treasury Marketable Security TreasuryDirect itself has no sell function. To sell, you first transfer the bond to a bank or broker using FS Form 5511 through your TreasuryDirect account; once the bond arrives at the broker, you can sell it on the secondary market like any other security.10TreasuryDirect. Transferring From One System to Another If you bought through a broker in the first place, that extra step disappears.
Whatever route you take, the price you get depends on where interest rates sit on the day you sell and how much time is left on the bond.
What Can Actually Go Wrong
Treasuries get called “risk-free,” and when it comes to the chance of the government defaulting, that’s close to accurate. But that label covers credit risk only. Over a 20- or 30-year horizon, other risks are very real.
Interest Rate Risk
This is the big one. A bond’s duration roughly predicts how much its price moves for every one-percentage-point change in interest rates. A 30-year Treasury typically has a duration in the high teens, so a one-point rise in rates could knock roughly 15 to 20 percent off the market value of the bond.11FINRA. Brush Up on Bonds: Interest Rate Changes and Duration You still receive full face value at maturity, but anyone forced to sell early could take a steep loss on paper. The same math works the other way when rates fall.
Inflation Risk
Your coupon is fixed in nominal dollars. Lock in 5% while inflation runs at 4%, and your real return is roughly 1%. Over 30 years, even moderate inflation compounds into real erosion of purchasing power. Investors worried about this often hold TIPS or other inflation-hedged assets alongside conventional bonds rather than relying on fixed coupons alone.
Reinvestment Risk
Every six months you receive a coupon payment that has to go somewhere. If rates have fallen since you bought the bond, you’ll reinvest at those lower yields, which quietly reduces your realized total return compared with what the headline coupon rate suggests.
How Treasury Bonds Are Taxed
Interest Income
Interest on Treasury bonds is subject to federal income tax but exempt from state and local income taxes. The exemption comes from federal law barring states from taxing obligations of the United States, with narrow exceptions for nondiscriminatory franchise taxes on corporations and for estate or inheritance taxes.12Office of the Law Revision Counsel. 31 USC 3124 – Exemption From Taxation Neither exception usually touches an individual bondholder’s interest.
If you live in a state with high income tax, that exemption meaningfully boosts the effective after-tax yield compared with a similarly rated corporate bond. TreasuryDirect or your broker reports the interest to you on Form 1099-INT each year, and you subtract the Treasury interest on your state return using whatever modification line your state provides.13Internal Revenue Service. About Form 1099-INT, Interest Income
Capital Gains and Losses
Sell a bond for more than you paid and the profit is a capital gain, taxable at the federal level. Sell for less and the loss can offset other gains. The state-tax exemption covers interest only, not capital gains.
Bonds bought at a premium or discount add complications. Paying more than face value opens an option to amortize the premium over the bond’s remaining life, which reduces your taxable interest each year. Buying at a discount on the secondary market can mean part of your eventual gain is taxed as ordinary income rather than capital gain. The treatment depends on elections you make at purchase, so talk to a tax professional if you’re buying anywhere other than at face value at auction.