Treasury bonds are long-term debt securities issued by the U.S. federal government with maturities of 20 or 30 years. They pay a fixed rate of interest every six months and return the full face value at maturity, backed by the full faith and credit of the United States. That backing puts credit risk near zero, but the long duration means holders take on meaningful interest rate and inflation risk that shorter Treasury securities avoid.
How a Treasury Bond Works
Buying a T-bond means lending money to the federal government. In return, the Treasury pays you a fixed interest rate, called the coupon, that is locked in at auction and never changes for the life of the bond. Payments arrive twice a year in equal amounts. A $10,000 bond with a 5% coupon pays $250 every six months until it matures, at which point you get the $10,000 back.
T-bonds come in two terms: 20 years and 30 years. They are the longest-maturity marketable securities the Treasury offers.1TreasuryDirect. Treasury Bonds The minimum purchase is $100, and larger amounts must be in $100 increments. All T-bonds are now issued in electronic form only.
The coupon rate is fixed, but the bond’s market price is not. When interest rates rise after you buy, new bonds pay more than yours, and the resale value of your bond drops. Falling rates push existing bond prices up. None of this matters if you hold to maturity, when you receive exactly the face value regardless of what rates did in between.
How T-Bonds Compare to Other Treasury Securities
The Treasury issues several kinds of marketable securities. The differences come down to how long they last and how they pay.
- Treasury Bills mature in 4, 8, 13, 17, 26, or 52 weeks. They pay no periodic interest; you buy at a discount and receive face value at maturity, and the difference is your return.2TreasuryDirect. Treasury Bills
- Treasury Notes mature in 2, 3, 5, 7, or 10 years. Like T-bonds they pay fixed interest every six months, but their shorter duration makes prices less volatile when rates move.3TreasuryDirect. Treasury Notes
- Treasury Bonds sit at the long end at 20 or 30 years and typically carry the highest coupons of the three, since investors want more compensation for tying up money for decades.1TreasuryDirect. Treasury Bonds
Treasury Inflation-Protected Securities
TIPS are a separate product worth knowing about, because they address the biggest weakness of a regular T-bond: inflation. A standard T-bond pays a fixed coupon on a fixed face value, so rising prices steadily erode the real value of those payments over 20 or 30 years. TIPS adjust the bond’s principal in line with the Consumer Price Index. The coupon rate stays the same, but it applies to an inflation-adjusted principal, so the dollar payments rise with prices.4TreasuryDirect. Treasury Inflation-Protected Securities (TIPS)
TIPS come in 5-year, 10-year, and 30-year terms with the same $100 minimum. The tradeoff is a lower coupon than a comparable fixed-rate bond. You give up nominal yield in exchange for inflation protection.
How to Buy Treasury Bonds
Through TreasuryDirect
TreasuryDirect is the Treasury Department’s own online platform for buying government securities without a middleman.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-year and 30-year bonds are auctioned monthly.7U.S. Department of the Treasury. Tentative Auction Schedule Most individual buyers submit a non-competitive bid, meaning they accept whatever yield the auction produces and are guaranteed to receive their bonds. The non-competitive limit is $10 million per auction.8eCFR. 31 CFR 356.12 – What Are the Different Types of Bids and How Do They Work?
Through a Brokerage
Standard brokerage accounts also sell T-bonds, and this is the only route to the secondary market, where prices reflect current interest rates rather than a fresh auction. Some brokerages charge transaction fees; others offer commission-free Treasury trades. Competitive bidders at auction, typically institutional investors, specify the exact yield they will accept and may get a better price, but they risk being shut out if their bid is not competitive enough.
Selling Before Maturity
You do not have to hold a T-bond for the full 20 or 30 years. If your bond sits in TreasuryDirect, it must stay there 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.10TreasuryDirect. Transferring From One System to Another Bonds originally bought through a broker are already in the right place to sell.
The price you receive depends on current interest rates and the bond’s remaining term. Treasury bonds are among the most liquid securities in the world, and the bid-ask spread is narrow compared with corporate bonds and other fixed-income products.
The Real Risks of Long-Term Treasuries
The phrase “risk-free” gets attached to Treasuries, and the chance of the federal government failing to pay is extraordinarily small. But that phrase refers only to credit risk. Over a 20- or 30-year horizon, T-bonds carry other risks that can meaningfully change your returns.
Interest Rate Risk
This is where most of the damage happens. Long-duration bonds are highly sensitive to rate changes. A rough guide: a bond’s duration approximates the percentage its price moves for every one-percentage-point shift in rates. A 30-year Treasury typically has a duration in the high teens, so a one-point rate increase can wipe roughly 15% to 20% off the market value.11FINRA. Brush Up on Bonds: Interest Rate Changes and Duration That is a steep paper loss, even though you would still receive full face value at maturity.
The reverse also holds. Falling rates push long-bond prices up by the same magnitude. Anyone who needs to sell before maturity takes whatever the market offers that day.
Inflation Risk
A T-bond’s coupon is fixed in nominal dollars. Lock in 5% while inflation runs at 4% for a decade and your real return is about 1%. Over 30 years, even moderate inflation compounds into serious erosion of purchasing power. Investors worried about this often pair conventional T-bonds with TIPS or other inflation-hedged assets.
Reinvestment Risk
The semi-annual coupon payments have to go somewhere. If rates have fallen since you bought the bond, you reinvest those payments at lower yields than the coupon itself. Over decades the drag adds up and quietly reduces the total return you actually realize.
How Treasury Bonds Are Taxed
Interest Income
Interest on a T-bond 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 U.S. government.12Office of the Law Revision Counsel. 31 USC 3124 – Exemption From Taxation The statute has two narrow exceptions, for nondiscriminatory franchise taxes on corporations and for estate or inheritance taxes, neither of which affects a typical individual holder’s interest income.
For investors in high-tax states, the state exemption raises the effective after-tax yield compared with a similarly rated corporate bond. Your custodian or TreasuryDirect reports interest on Form 1099-INT each year.13Internal Revenue Service. About Form 1099-INT, Interest Income On your state return, you subtract the Treasury interest using the state’s designated modification line.
Capital Gains and Losses
Selling a T-bond before maturity for more than you paid creates a capital gain subject to federal tax. Selling for less creates a capital loss usable against other gains. The state exemption applies only to interest, not to capital gains from selling the bond.
Bonds bought at a premium or discount add complexity. Paying more than face value lets you elect to amortize the premium over the bond’s remaining life, reducing taxable interest each year. Buying at a discount on the secondary market may result in the accrued discount being taxed as ordinary income rather than capital gain when you sell or the bond matures. The specifics depend on elections made at purchase, so a tax professional is worth consulting when you buy at anything other than face value.