Which statement most accurately describes Treasury Notes and Treasury Bonds?

Which statement most accurately describes Treasury Notes and Treasury Bonds?

• A. Notes have original maturities between 1 and 10 years, while bonds have maturities greater than 10 years
• B. Notes have longer maturities than bonds
• C. Notes are issued by corporations
• D. Notes are not coupon-bearing

Answer: (A)

The key idea is how the maturity lengths distinguish Treasury notes from Treasury bonds. Treasury notes are shorter-term securities, with maturities up to 10 years (in practice, typically 2–10 years), while Treasury bonds are longer-term securities with maturities beyond 10 years (20 or 30 years). This difference in original maturities is what sets notes apart from bonds and is the reason the statement describing notes as maturing within 1–10 years and bonds as maturing over 10 years is the best fit among the choices. Both notes and bonds are coupon-bearing and issued by the U.S. Treasury, not corporations, so the other statements don’t fit. The comparison is important because longer maturities come with greater interest-rate risk and price sensitivity to rate changes.

The key idea is how the maturity lengths distinguish Treasury notes from Treasury bonds. Treasury notes are shorter-term securities, with maturities up to 10 years (in practice, typically 2–10 years), while Treasury bonds are longer-term securities with maturities beyond 10 years (20 or 30 years). This difference in original maturities is what sets notes apart from bonds and is the reason the statement describing notes as maturing within 1–10 years and bonds as maturing over 10 years is the best fit among the choices. Both notes and bonds are coupon-bearing and issued by the U.S. Treasury, not corporations, so the other statements don’t fit. The comparison is important because longer maturities come with greater interest-rate risk and price sensitivity to rate changes.