CBOT Financial Futures T-bonds and T-Notes
Traders and Investors who focus on financials will often hear three different terms relating to government bonds: Treasury bills, Treasury notes, and Treasury bonds.
There are two main differences between these three types of U.S. Treasuries, maturity dates and the way they pay interest.
Treasury note Futures:
Treasury notes are issued with maturities of one, three, five, seven, and 10 years, while Treasury bonds (also called “long bonds” and “t-bond”) offer maturities of 20 and 30 years. The only difference between notes and bonds is the length until maturity. The 10-year is the most widely followed of all maturities; it is used as both the benchmark for the Treasury market and the basis for banks’ calculation of mortgage rates.
Treasury bond Futures:
Once T-notes and T-bonds are issued, their prices fluctuate so their yields remain linked to market prices. For example, say the government issues a 30-year bond with a yield of 10% when interest rates are high. In the next 15 years, prevailing rates fall significantly and new long bonds are being issued at 5%. Investors will no longer be able to buy the older T-bond and still receive a yield of 10%; instead, its yield to maturity will fall and its price will rise. In general, the longer the time there is until the bond matures the greater price fluctuation it will experience. In contrast, T-bills experience very little in the way of price fluctuation since they mature in such a short amount of time.