Treasury Bonds vs. Treasury Notes vs. Treasury Bills: What’s the Difference

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Every government needs money to meet its financial obligations. They approach the public to raise funds. For this purpose, the Government offers different financial instruments like T-bills, Treasury bonds, T-notes, and more. They may be also known as money market instruments, debt securities, bonds, etc. There are a lot of differences between these three financial instruments. One key difference is their maturity period. T-bills or Treasury bills are issued by Government to raise funds for a short-time period of less than one year. Whereas T-Bonds are a long-term capital instrument, that offers the highest interest payments to maturity. They have a maturity of more than 10 years. Similar to T-bonds, T-notes have a maturity of 2-10 years. To know more about this topic, read the article given below, which explains the differences between T-Bills, T-notes, and T-bonds.

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What is a debt instrument?

It is an investment method that focuses on the preservation of capital and income.
They are fixed-income assets that legally committed the debtor to provide the money lender interest and principal payment.
A debt instrument is used as the medium to facilitate debt trading and obligations from one party to another party.
A debt instrument can be in paper or electronic form, which provides fixed and high returns.
They may be issued for a long-term or short-term period.

Features of debt instruments

Treasury bills, notes, and bonds are called “Treasury”.
No tax deducted at source
Issued at a discount to their face value
Safe investment
High liquidity
Risk-Free

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Treasury Bills or TBs in India

Treasury Bills are money market instruments issued by the Government of India with a maturity of one year. T-bills are short-term borrowing debt instruments that have a maximum maturity of 364 days. Unlike Treasury notes and bonds, T-bills don’t make interest payments. It will be issued at a discount to the original value and the purchaser gets the original value upon maturity. Mainly, Individuals, trusts, institutions, and banks can purchase T-Bills.

Features of T-Bill

Short-term borrowing instrument.
T-bills are also known as Zero-Coupon Bonds.
In 1917, T-Bills, or Depository bills were first issued through auctions conducted by the Reserve Bank of India (RBI).
The State Government has no right to issue T-bills.
Interest on the T-bills is determined by the supply and demand of the market.
Issued in the form of promissory notes with guaranteed repayment at a later date.
T-bills are finance bills they are different from commercial bills.
T-Bills market is the place, where the T-bills are bought and sold.

T-Bills are classified in India into three categories:-

91 Days
182 Days
364 Days

Major participants in the T-bills market

Reserve Bank of India(RBI)
Mutual Funds
Financial institutions
Primary dealers
Provident funds
Corporate
Foreign banks

How to purchase T-bills in India

T-Bills or Depository bills are issued in the primary market through auctions conducted by the Reserve Bank of India (RBI). Two types of bids are accepted:1) non-competitive bid and 2) competitive bid.

Financial institutions, banks, mutual funds, primary dealers, and insurance companies play a vital role in competitive bids.
Individuals, HUF/ trust, firm, corporate body, institution, provident funds, and any other parties come under the Non-competitive bidders’ category.

Treasury Bonds

In simple words, Treasury bonds are a capital market instrument. T-bonds are issued with maturities that can range from 2 years to 30 years. T-bonds are Issued by the government, central banks, or corporate companies. The Government-issued bonds are free from tax at the federal, state, or local level while the corporate bonds are issued with tax.

The longest-term bonds offer the highest coupon payment. Bondholders pay interest every six months. Bonds are mainly classified into government bonds, corporate bonds, zero-coupon bonds, and municipal bonds.

Features

Long-term capital market instrument.
High liquid
Default-free

Treasury Notes

A Treasury note is a US government financial instrument with a fixed interest rate. T-notes have a term of 2, 3, 5, and 10 years of maturity. The interest is paid semi-annually until the maturity period. People can purchase T-notes through a private securities broker, government securities dealer, bank, or other financial institutions.

Differences: Treasury Bills vs. Treasury Notes vs. Treasury Bonds

Treasury Bills	Treasury Notes	Treasury Bonds
Short-term investment	Longer-term than a bill but a shorter term than a bond.	Called T-Bonds are a long-term investment
91 Days,182 Days, and 364 Days	Intermediate-term Treasury security.	Corporate bonds, zero-coupon bonds, and municipal bonds
Don’t need to pay interest before maturity. They are sold at a discount rate from face value.	A fixed interest rate is paid semi-annually until the maturity period.	A fixed interest rate is paid semi-annually until the maturity period.
Maturity of one year or less.	Issued in terms of two-, three-, five- and 10 years.	Maturity of more than 10 years.
The price of T-bills and the return of investors will be affected by various factors like market condition, investor risk profile, inflation, and monetary policy.	The price of the T-notes may fluctuate based on the results of the auction.	The fluctuation in market price will affect several factors, including the maturity date and coupon rate on the bond or the bonds held by the fund or exchange-traded fund (ETF).