======U.S. Treasury Note======
A U.S. Treasury Note (often called a [[T-Note]]) is a type of [[debt security]] issued by the [[U.S. Treasury]] to fund government spending. Think of it as an IOU from the [[U.S. Federal Government]]. When you buy a T-Note, you are lending money to the government for a set period. In return, the government promises to pay you regular interest payments, known as [[coupon]] payments, twice a year. T-Notes are considered medium-term investments, with a [[maturity]] (the length of the loan) ranging from two to ten years. At the end of this term, the government repays the full original loan amount, called the [[principal]] or [[par value]]. Because they are backed by the [[full faith and credit]] of the United States, T-Notes are considered one of the safest investments on the planet. This high level of safety makes them a cornerstone of the global financial system and a benchmark for pricing other, riskier assets.
===== How Do T-Notes Actually Work? =====
The mechanics of a T-Note are refreshingly simple, which is a big part of their appeal.
  * **Buying Them:** T-Notes are typically sold to the public through [[auction]]s conducted by the Treasury Department. Investors can buy them directly from the government via the TreasuryDirect website or through a bank or broker.
  * **Earning Interest:** Once you own a T-Note, you'll receive a fixed interest payment every six months until it matures. For example, if you own a $1,000 T-Note with a 3% coupon rate, you’ll receive $15 every six months ($1,000 x 3% / 2). This predictable cash flow is what makes them a popular [[fixed-income]] investment.
  * **Getting Your Money Back:** When the note "matures" at the end of its term (say, 10 years), the government pays you back the full face value of the note—in our example, $1,000.
  * **Selling Early:** You don't have to wait until maturity. T-Notes are highly liquid, meaning they can be easily bought and sold on the [[secondary market]] through a broker, much like stocks. However, their price on this market can fluctuate. If prevailing [[interest rate]]s have risen since you bought your note, your older, lower-paying note will be less attractive and will sell for a lower price. Conversely, if rates have fallen, your note becomes more valuable.
===== T-Notes vs. Their Treasury Cousins =====
The Treasury issues a few different types of debt, and it's easy to get them mixed up. The main difference is their lifespan.
==== T-Notes vs. T-Bills ====
The key distinction here is time and interest. [[U.S. Treasury Bills]] ([[T-Bills]]) are the sprinters of the Treasury world, with maturities of one year or less. Unlike T-Notes, they don't pay a periodic coupon. Instead, they are sold at a discount to their [[face value]]. You might buy a $1,000 T-Bill for $980, and when it matures in six months, you get the full $1,000 back. Your "interest" is the $20 difference.
==== T-Notes vs. T-Bonds ====
[[U.S. Treasury Bonds]] ([[T-Bonds]]) are the marathon runners, with maturities longer than ten years, often stretching out to 20 or 30 years. Like T-Notes, they pay interest twice a year. The primary difference is their longer duration, which makes them more sensitive to changes in interest rates. This increased [[interest rate risk]] means their price on the secondary market can swing more dramatically than a T-Note's price.
===== A Value Investor's Perspective =====
For a value investor, T-Notes are more than just a safe place to park cash; they are a fundamental tool for making decisions.
=== The Bedrock of "Risk-Free" Return ===
Value investing legends like [[Benjamin Graham]] championed the concept of a [[margin of safety]]. T-Notes are the ultimate expression of this—your principal and interest are about as guaranteed as anything can be. The [[yield]] on a T-Note, particularly the 10-year note, is famously used as the "risk-free rate of return." It sets the baseline. A value investor asks: "Why should I take the risk of investing in a company if I don't expect it to generate returns that //comfortably// beat what I can get from the U.S. government, risk-free?" If a stock's potential return isn't high enough to compensate for its inherent risks relative to a T-Note, a value investor will simply pass.
=== The Not-So-Hidden Risks ===
Even the safest investments have a catch. With T-Notes, the primary villain is **[[inflation risk]]**. The fixed coupon payments are set in stone. If inflation suddenly spikes to 5%, and your T-Note is only paying you 3%, your money is actually losing purchasing power every year. You're getting your money back, but it buys less than it used to. This is why holding very long-term bonds can be risky—it locks you into an interest rate that may be dwarfed by future inflation. While T-Notes provide unparalleled safety of principal, they don't guarantee a positive //real// return after accounting for inflation.