The proper names for the different types of U.S. Treasury bonds

With interest rates higher and, as a result, U.S. Treasury bonds back in fashion because of their greater income potential, more people are talking about Treasury bonds. With that in mind, it’s important to understand the proper terminology and names for the different flavors of Treasury bonds.

To be fair, U.S. Treasury bonds were never really out of fashion. They’ve always served a purpose for investors in some way, shape or form. However, now that interest rates have bounced back from their freakishly low pandemic-era rock bottoms, Treasury bonds are looking more compelling now than they were a year or two ago.

Many people refer to ALL forms of investable debt from the U.S. Treasury as Treasury “bonds.” That’s not entirely accurate.

There’s more to it than this but, for purposes of this newsletter, I’ll broadly classify all Treasury bonds into two main categories: 1) marketable securities and 2) savings bonds.

Marketable Treasury securities are investable debt obligations issued by the U.S. Treasury Department. They are backed by the “full faith and credit” of the U.S. government.

They are called “marketable” because they can be bought and sold from/to other people or investors. In other words, you don’t necessarily have to buy marketable Treasury securities directly from the U.S. Treasury. Instead, you can buy them in a normal brokerage account, where you’d ultimately buy them from a broker who in turn likely bought them from another broker or investor.

With regards to what I’ll call “normal” Treasury securities (i.e. NOT inflation protected securities or zero coupon bonds called STRIPS), there are technically three different terms to describe them, based on their original time until maturity:

• Treasury Bills are issued with up to 12 months until they mature
• Treasury Notes are issued with original maturities greater than 12 months and up to (and including) 10 years
• Treasury Bonds are issued with original maturities greater than 10 years

The second broad category of Treasury bonds are savings bonds.

Unlike marketable Treasury securities, savings bonds are not bought and sold amongst investors and brokers. Instead, they’re purchased directly from the Treasury, typically through www.TreasuryDirect.gov.

Similarly, when you want to get out of a savings bond, you don’t sell it to a broker or other investor. Instead, you directly redeem it from the Treasury, or through a bank (who in turns redeems it from the Treasury for you).

Examples of savings bonds are the now infamous “I bond,” which is a savings bond whose interest rate is directly tied to the level of inflation.

Another currently available savings bond is an “EE bond,” which offers a fixed rate of interest and is guaranteed to double in value over 20 years (if the fixed rate on it is low enough to not otherwise double in value over that time).

There are also other legacy forms of savings bond no longer issued, such as HH bonds and E bonds.

As you can see, it’s not technically accurate to refer to all Treasury securities as “bonds.” Instead, in the case of marketable securities, they should be referred to as bills, notes or bonds. Or, for savings bonds, it’s probably accurate enough to call them bonds. However, it’s better to refer to them by their proper name or type, such as I bonds, EE bonds, etc.

In reality, most people outside of the industry generically use the term “bonds” to refer to all of these things. And that’s okay. But if you want to sound fancy and impress your friends at parties (or maybe turn them off because you’ll make yourself sound pretentious!), call them by their proper names.