Intermediate-Term U.S. Treasury Bond

Intermediate-term U.S. Treasury (treasury notes) based mutual funds and ETFs invest primarily... Intermediate-term U.S. Treasury (treasury notes) based mutual funds and ETFs invest primarily (more than 90% of their assets) in U.S. government debt with typical maturities of two, three, five, seven, and 10 years. Individual treasury notes, sold by the U.S. Department of the Treasury for different government services and programs requiring near-to-medium term funding, earn a fixed rate of interest every six months until maturity. Interest income is subject to federal income taxes, but exempt from state and local income taxes. Treasury notes are generally regarded as safe investments, in the sense that investors are confident the government will not default on either its interest or principal obligations. For this reason, compared to other similarly structured debt securities, treasury notes always have better ratings from credit rating agencies and tend to be part of conservative fixed-income portfolios. Due to their safety net, treasury notes generally yield less than riskier securities (such as investment-grade corporate debt and high-yield corporate debt), but an investor’s principal amount remains more secure. Typically, investors purchasing treasury notes believe that interest rates will fall in the near-to-medium term, as this will tend to increase the market value of their bond holdings (given the inverse relationship between interest rates and bond prices). However, a rising rate environment can increase the interest rate risk for these securities whose market value can fall. It is important to highlight that treasury notes are not as sensitive to changes in interest rates as long-term treasury bonds, but more sensitive than short-term treasury bills. Last Updated: 01/22/2025 View more View less

Intermediate-term U.S. Treasury (treasury notes) based mutual funds and ETFs invest primarily (more than 90% of their assets) in U.S. government debt with typical maturities of two, three, five, seven, and 10 years.... Intermediate-term U.S. Treasury (treasury notes) based mutual funds and ETFs invest primarily (more than 90% of their assets) in U.S. government debt with typical maturities of two, three, five, seven, and 10 years. Individual treasury notes, sold by the U.S. Department of the Treasury for different government services and programs requiring near-to-medium term funding, earn a fixed rate of interest every six months until maturity. Interest income is subject to federal income taxes, but exempt from state and local income taxes. Treasury notes are generally regarded as safe investments, in the sense that investors are confident the government will not default on either its interest or principal obligations. For this reason, compared to other similarly structured debt securities, treasury notes always have better ratings from credit rating agencies and tend to be part of conservative fixed-income portfolios. Due to their safety net, treasury notes generally yield less than riskier securities (such as investment-grade corporate debt and high-yield corporate debt), but an investor’s principal amount remains more secure. Typically, investors purchasing treasury notes believe that interest rates will fall in the near-to-medium term, as this will tend to increase the market value of their bond holdings (given the inverse relationship between interest rates and bond prices). However, a rising rate environment can increase the interest rate risk for these securities whose market value can fall. It is important to highlight that treasury notes are not as sensitive to changes in interest rates as long-term treasury bonds, but more sensitive than short-term treasury bills. Last Updated: 01/22/2025 View more View less