Treasuries 101: The ABCs of Notes, TIPs, and FRNs

Treasuries are all the rage this year, but what are they, really? Other fixed income asset classes may be more creatively designed or come with the potential for riskier, higher yields, yes. None, however, contain the alphabet soup of government acronyms that Treasuries do. From floating-rate notes (FRNs) to Treasury Inflation-Protected Securities (TIPS) and so much more, let’s take a look at Treasuries 101 in advance of this month’s VettaFi’s Fixed Income Symposium.

Treasuries 101: Getting Started

Treasuries, or Treasury securities, are backed by the “full faith and credit” of the United States. The United States Department of the Treasury issues Treasury securities in four marketable varieties: Treasury bills, Treasury notes, Treasury bonds, and TIPS. The government auctions those Treasury securities at the Federal Reserve Bank of New York.

Like other bonds, investors who purchase those notes receive an annual “coupon” payment based on the interest rate tied to the Treasury and the rate at which the investor purchased it. The government then returns the original face value when the security matures.

The variety of bills, notes, TIPs, FRNs, and other products available at the Treasury all package that fundamental bond payment structure differently.

Treasury Bills

Governments need money, and that’s where Treasury bills, or T-bills, come in. The Treasury Department normally sells these when it needs to raise money, which can be a very frequent occurrence. The Treasury sells T-bills in competitive and non-competitive sales.

Most investors hold T-bills until maturity, with their lifetimes ranging from only days to months. Finally, T-bills also cost investors less than their face value, though they still repay the total value at maturity. That’s because they don’t pay out a coupon but do add the attached interest rate to their repayment.

Treasury Notes

Treasury notes mature in longer timeframes and are similarly available in competitive or non-competitive bids. Notes have much longer maturities than their T-bill relatives, measured in years instead of days or months. That can lead to notes maturing over five-, 10-, or even 30-year timeframes.

Of course, this comes with long-term coupon payments every six months, but that adds risk, too. Specifically, notes’ longer durations add more risk that interest rates will rise above the rate attached to the note. That lowers the notes’ value and can really sour the overall experience of investing in and holding a note.


TIPS, otherwise known as Treasury Inflation-Protected Securities, are designed to protect investors from inflation. Unlike other Treasury offerings, the principal investment in TIPS can rise or fall as they mature. TIPS offer an upside in that if the principal rises, the investor receives the higher value at maturity. If it drops, the investor still gets the original invested amount.

They also pay a “fixed” rate of interest on the principal, although the payment can rise if the principal rises. TIPS mature over five, 10, or 30 years.


FRNs, also known as floating-rate notes, are the newest variation of Treasury security, having launched just 10 years ago. Floating-rate notes offer exposure to the shorter-duration world of Treasuries. FRNs’ rates float with the overall interest rate within the United States. The coupon payment responds to the rate itself, which resets on a regular basis.

Those notes usually become more popular when rates are expected to rise, which has proven valuable over the last year. Floating-rate notes’ shorter maturities may also make them more forgiving overall.

The Benefits of Treasuries

So why choose to invest in Treasuries? For one thing, they’re considered a very safe investment. Fixed income roared back to life over the last 12 months, not only due to rising rates but also to meet investors’ demand for a reliable and trustworthy source of diversification away from pricey equities. Treasuries stand above nearly any other available debt security in terms of the safety offered. Also, various flavors of Treasuries can protect investors’ principal.

The yields available in Treasuries right now, however, stand out. For all of that safety, one would normally expect pretty respectable but unexciting returns. As of July 19, 2023, the 10-year Treasury rate sat at 3.8%, the five-year Treasury rate sat at 4%, and the one-year Treasury rate sat at 5.3%. Those are very intriguing, given the safety implied by their government backing.

Investors have all kinds of Treasury-related ETF options to consider. From the WisdomTree Floating Rate Treasury Fund (USFR) to the iShares 20+ Year Treasury Bond ETF (TLT), investors can learn more about Treasuries and all kinds of fixed income asset classes at the virtual VettaFi Fixed Income Symposium on July 24, 2023 at 11:00 AM EST/8:00 AM PST.

For more news, information, and analysis, visit the U.S. Treasuries & TIPS Fixed Income Channel.

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