Treasury notes (T-Notes) are very similar to Treasury bonds except they are medium-term bonds with maturities of two, five and ten years. U.S. T-Notes are considered such safe investments that their price and yield are benchmarks for medium-term interest rates and, more recently, as a measure of the credit crisis.
As with T-Bonds, individual investors can buy T-Notes electronically from TreasuryDirect in increments of $100 while the maximum purchase at a single quarterly non-competitive sale is $5 million. They also carry the same exemptions from state and local income taxes.
Down is good
Demand for T-Notes during the credit crisis has been a key measure of how frozen credit markets, especially those in medium-term corporate bonds and mortgage-backed securities, are faring. Falling T-Note prices indicate that investors may be returning to credit markets seeking other fixed income opportunities, seen in a recent sell-off in early October, 2008 of T-Notes soon after a government bail-out plan was announced. Investors also measure the health of the corporate debt market by tracking the spread between yields and prices of T-Notes and similar-maturity corporate bonds.