Treasury Note

What Are Treasury Notes?

Treasury notes (T-notes) are US government debt securities with original maturities between 2 and 10 years. They pay semi-annual coupons and return the face value at maturity. T-notes are issued in $100 increments and are highly liquid in secondary markets.

The Treasury auctions T-notes on regular monthly cycles. 2-year, 3-year, 5-year, 7-year, and 10-year notes are all issued. The 10-year is the highest-volume single Treasury security globally, with daily trading volumes routinely exceeding $500 billion.

FRED tickers include DGS2 (2-year), DGS3 (3-year), DGS5 (5-year), DGS7 (7-year), and DGS10 (10-year).

Why T-Notes Matter

T-notes form the belly and intermediate part of the Treasury yield curve. They anchor:

• Mortgage rates: The 30-year fixed mortgage rate tracks the 10-year T-note plus a spread that varies between 175-280 bp.
• Corporate borrowing: Investment-grade and high-yield corporate bonds are priced as spreads over the relevant Treasury benchmark.
• Equity valuation: The 10-year yield is used as the discount rate in many discounted cash flow models. Every 100 bp rise in the 10-year compresses equity multiples by 2-3 turns on average.
• Global interest rates: International sovereign bond yields are often analyzed in spread to US T-notes.
• Pension and insurance liabilities: Long-tail liabilities are discounted using long T-note yields.

How to Read T-Note Yields

Yield curve shape. The 2-10 spread (DGS10 minus DGS2) is one of the most-watched recession indicators. Inversions (2-year yielding more than 10-year) have preceded every NBER-dated recession since 1970.

Auction tails. The "tail" is the difference between the high (yield) accepted at auction and the prevailing market yield just before the auction. Positive tails (auction clearing above market) signal weak demand. The October 2023 30-year auction tail of 5.3 bp was a notable weak-demand signal.

Indirect bidder percentage. The Treasury publishes the percentage of each auction going to "indirect" bidders (primarily foreign central banks). Sustained declines signal foreign demand softening.

Real yield decomposition. The 10-year T-note yield can be decomposed into expected real rates plus expected inflation plus term premium. TIPS yields (DFII10) provide the real-rate component; subtracting from nominal gives breakeven inflation.

Historical Context

The 10-year T-note yield has ranged from a low of 0.50% (August 2020) to a high of 15.84% (September 1981). The 2010-2019 expansion saw it range between 1.3% and 3.3%. The 2022-2023 cycle drove it from 1.5% in early 2022 to 5.0% in October 2023 (the first time above 5% since 2007).

Through 2024-2025, the 10-year has run in the 3.8-4.6% range, broadly tracking the Fed's post-September-2024 cutting cycle plus elevated term premium. The 2-10 spread re-steepened from a 26-month inversion (July 2022 - October 2024) to positive levels through 2024-2025.