10-Year Treasury Note

  

Categories: Investing, Bonds, Insurance

Government paper, or bonds, which pay interest twice a year like normal bonds, and then boringly come due and pay off the principal that the U.S. government borrowed. Remember that, when the government issues tons of paper, i.e. sells lots of bonds, it raises cash for itself, sucking cash out of the system, sucking liquidity from the system... and vice-versa.

Related or Semi-related Video

Finance: What are T-Notes, T-Bonds and T...18 Views

00:00

Finance allah shmoop what are t notes t bills and

00:06

tips All right we'll see that tea in there Well

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it stands for treasury and all of these air one

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flavor or another of government debt that is the u

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s government raises cash for itself teo fix roads build

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bridges and erect statues of lebron james dunking on the

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statue of liberty or you know whatever else he thinks

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the public wants or needs it does that by auctioning

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off these debt securities with the promise of its full

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faith and credit to pay back the money is the

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paper specifies well t notes are quote mid range unquote

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paper in that they generally have maturity ease of two

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three five seven and ten years that's a teen note

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t notes carry a stated interest rate and look a

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lot like a normal corporate bond paying interest twice a

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year T bills on the other hand are generally very

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short term paper usually coming due within a few days

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all the way up to a year they're sold or

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auctioned at a discount meaning that the t bill might

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promise to pay a thousand bucks if it comes due

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In six weeks you might pay nine hundred ninety six

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dollars for it and you get a whopping fee Four

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bucks an interest for your six weeks hard work of

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owning that t bill and just you know sitting there

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kind of looks like a zero coupon bond Okay so

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now we have tips that's tips treasury inflation protected securities

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tips as in show us your tips getting Why do

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we have such a thing Well the problem with super

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duper safe bonds like those of the u s government

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is that investors holding them a long time often do

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worse after taxes than inflation meaning that if inflation is

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growing at three percent a year in their bonds are

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only returning one percent a year after tax while then

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the investors actually losing two percent a year in buying

01:46

power and that's a problem in nineteen nineties when investors

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started to realize this issue well they began Tio you

01:52

know stop buying u s government bonds and that's a

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huge problem for a country that desperately needs to borrow

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cash all the time So rather than risk a liquid

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marketplace where there's just no buyers buying government paper uncle

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Sam created tips which basically adjust the end value of

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the principle that investors get based on the c p

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i or consumer price index which is a measure of

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the average selling prices of a carton of milk a

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gallon of fuel a dozen eggs and a grand slam

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breakfast at denny's Basically what happens is that the price

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of the principal the investor gets back goes up with

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inflation over time So they're not losing buying power and

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that's a big deal That's it go Enjoy your grand 00:02:33.995 --> [endTime] slam It'll be fourteen thousand dollars in fifty years

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