American Treasury NotesBond Instruments
American Treasury Notes are a type of nominal sovereign bond. Nominal Sovereign Bonds do not adjust for inflation over the bond’s term. You will receive the stated par value at maturity, as well as the interest from bonds over the bond’s term at a fixed rate. Depending on the government, the original issue is purchased via direct sale, or via an auction.
Treasury Notes or “T-Notes” are a midterm to long term investment sold by the USA’s government, lasting from 2 to 10 years. They pay interest in 6 month terms. You can currently purchase them directly from the US treasury, or using a bank or a broker. Your T-note is fully transferrable after purchase and can be bought and sold in the secondary market. Treasury note par values are initially set during the purchase. Notes can sell equal to, above, or below par value itself. The full par value will be delivered at maturity.
Treasury Notes themselves are sold via auction by the US treasury. All treasury notes come with a minimum par value of $100, and then scale upwards in increments of $100. Bidding comes in competitive and noncompetitive formats. A competitive bid is based on the yield, and can only be entered via a banker or broker. You are essentially setting the rate that you will receive from the bond, and the amount of interest they will ultimately pay you. You might receive a bond at this rate, but you may not receive a treasury note at all. If your bid is less than the high yields at the auction, your yield will be accepted and you will receive a note with the full par value. If your bid is equal to the highest yield at the auction, you will receive a note but with a lower par value. If your note is higher than the bids at the auction, you will probably not receive a treasury note at all. The maximum amount of treasury notes a single investor can purchase via competitive bidding is 35% of the offering.
Noncompetitive bids operate differently. You accept whatever yield is available to you at the auction. You are guaranteed to receive a bond at the full par value. The maximum treasury notes a single investor can purchase is $5 million via the non-competitive bidding.
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