Bills, Notes, Bonds, & CMBs | Treasury products | US government debt

The US Department of Treasury is responsible for running the finances of the US Government. The Treasury prints money, collects taxes through the IRS, and issues securities to pay for federal projects and expenditures.

Technically, the US Mint creates coins, while the Treasury’s Bureau of Engraving and Printing creates paper bills. The Federal Reserve creates digital currency and distributes all forms of currency (coins, bills, and digital).

There are several products the US Treasury issues to finance the federal government. They range from short to long-term in maturity and have different risks and features. One common theme Treasury products share is their minimum denominations. While most bonds have a minimum investment amount of $1,000, Treasuries have a minimum denomination of $100.

Treasury bills are a form of short-term, zero coupon debt issued by the Treasury. They are the most commonly sold Treasury security, as they can be auctioned as often as weekly (many other Treasury products are auctioned on monthly or quarterly cycles).

Sidenote

Frequency of Treasury Auctions

With over $33 trillion of outstanding debt, the US Treasury must raise significant amounts of money to pay for current government spending plus the money owed to its creditors. When and how often US Government debt is sold depends on many factors, including current budget deficits and cash flow to the government (primarily through taxes).

If you’re curious, here’s a tentative schedule for Treasury auctions. As you’ll see, different products are sold at different times and frequencies. While the dynamics and timing of Treasury auctions can change, the Series 7 exam will test the generalities. Here’s what you’ll want to commit to memory:

Treasury bills

Weekly issuance (all but 1 year T-bill)
Monthly issuance (1 year T-bill)

Treasury notes

Monthly issuance

Treasury bonds

Quarterly issuance

If you checked the schedule for Treasury auctions, you’ll notice the timeframes for auctions are a little different than in the real world. The Treasury increases the number of auctions they perform when they need more money (e.g. COVID-19 crisis) and vice versa. The auction frequencies listed above are generalities, which the exam tends to focus on.

The US Government offers Treasury bills in these maturities:

One month (4 weeks)
Two months (8 weeks)
Three months (13 weeks)
Four months (17 weeks)
Six months (26 weeks)
One year (52 weeks)

When Treasury bills are sold, they are sold at slight discounts. Due to their short-term nature, Treasury bills do not pay semi-annual interest like most other bonds. Instead, interest is received at maturity. For example, an investor purchases a one-year Treasury bill for $970. One year later, the US Government pays them $1,000 (par), netting $30 in interest.

Cash management bills (CMBs) are very similar to Treasury bills. They are issued at a discount, are zero coupon, and mature at par. The Treasury issues CMBs to close short-term funding gaps if spending rises unexpectedly, leading them to be issued on an “as needed” basis (issuance is not formally scheduled). The maturities of CMBs can vary depending on need and can be as short as one day.

Treasury notes are interest-paying, intermediate-term US Government bonds typically issued monthly. Treasury notes are typically sold at par, pay semi-annual interest, and mature within 2-10 years of issuance. Although lightly tested, Treasury notes are generally offered in 2-year, 3-year, 5-year, 7-year, and 10-year intervals.

Treasury bonds are interest-paying, long-term US Government bonds typically issued on a quarterly basis. Treasury bonds are sold at par, pay semi-annual interest, and mature within 30 years of issuance. Although lightly tested, Treasury bonds are generally offered in 20-year and 30-year intervals.

Sidenote

Callable Treasuries

Starting in 1985, the US Treasury no longer issued callable securities. Before then, some 30 year Treasury bonds used to be callable. All of those bonds have since been redeemed, so it’s safe to assume all US Treasury securities today are non-callable.

Key points

US Department of Treasury

Runs finances of the US Government

US Government debt denominations

Minimum of $100

Treasury bills

Short-term zero coupon debt
Generally issued on a weekly basis
1 year T-bill issued monthly
Issued at discounts and mature at par
Available maturities:
- One month (4 weeks)
- Two months (8 weeks)
- Three months (13 weeks)
- Four months (17 weeks)
- Six months (26 weeks)
- One year (52 weeks)

Cash management bills (CMBs)

Short-term, zero coupon treasury securities
Issued to close short-term funding gaps
Maturities as short as one day

Treasury notes

2-10 year maturities
Pay interest semi-annually
Generally issued on a monthly basis

Treasury bonds

Up to 30-year maturities
Pay interest semi-annually
Generally issued on a quarterly basis