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What Is a 10-Year Treasury Note?

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  • Written By: Justin Riche
  • Edited By: A. Joseph
  • Last Modified Date: 03 July 2014
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A 10-year Treasury note is a fixed-income debt security issued by the United States Treasury with a term of 10 years. The 10-year Treasury note carries a specific interest rate, and the investor who purchases it is entitled to a semi-annual coupon payment. This debt instrument is guaranteed by the U.S. government and thus is considered to be one of the safest investments in the bond market. Moreover, an investor can buy and sell the note from the Treasury or the liquid secondary market. The yield and price of the 10-year Treasury note are usually set at the auctions, which is where the note is traded.

Normally, the denomination of the 10-year treasury note is $1,000 US Dollars (USD), although it can be more, in some cases. This denomination is also called face value, par value, nominal value or simply redemption value. These words can be used interchangeably, and they mean that $1,000 USD is what the investor will get at maturity. If the investor purchased a note in another denomination, he or she would receive that amount at maturity.

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Generally, when an investor buys this note from the U.S. Treasury, he or she won't be able to redeem it before maturity, that is, before it reaches its 10-year expiry date. This is where the secondary market is useful, which allows the investor to gain access to it and trade the note and other U.S. Treasury securities that mature at different dates. In the secondary market, the investor can also access other investment instruments derived from the 10-year Treasury note or other Treasury bonds, such as futures on the 10-year note.

An individual seeking to invest in a 10-year Treasury note and/or other government bonds can choose to enroll in what is known as the TreasuryDirect program. Through this program, the U.S. Treasury offers investors an account through which they can buy and sell treasury debt instruments with different maturity dates. Moreover, these transactions will not incur commissions or other charges, except for accounts that exceed $100,000 USD, which require a yearly maintenance fee of $25 USD to be paid. Additionally, the interest earned from the 10-year Treasury note is exempt from state and local taxes, however, it is subject to Federal income taxes.

Individuals or institutions can invest in this note no matter where they are in the world. Investing in a 10-year Treasury note is usually done as one of the ways to protect wealth, not create it, and they usually offer relatively higher returns than savings accounts. Treasuries also are considered safe investments. Furthermore, the mortgage market uses the yields of the 10-year notes as benchmarks for setting interest rates on mortgage loans.

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