- Bills: short-term securities issued with maturities ranging from four weeks to one year. Bills are sold at a discount to par with no coupon. The yield is solely a function of the purchase price accruing to par by maturity. For example, a one-year bill priced at 95 yields 5.26%. That is calculated by dividing the expected price appreciation by the purchase price. In this case, the price gain will be $5 on a $95 investment. The math is: (100-95) /95.
- Notes: securities issued with maturities ranging from 2 years to 10 years. Unlike bills, notes pay a coupon every six months. The yield is a function of the coupon and the price. For example, a 2-year note with a price of 98 and coupon of 4% yields 5.02% annually. 4% comes from the coupon, and 1.02% (1/98 per year) is from expected price appreciation.
- Bonds: are identical to notes, except they describe all issuances with greater than ten years to maturity.
- TIPS: TIPS or Treasury Inflation-Protected securities are unique as the principal is adjusted by changes in the Consumer Price Index (CPI). TIPS pay interest every six months and are issued in terms of 5, 10, and 30 years. TIPS should provide a zero percent real return, ensuring you do not lose purchasing power to inflation.
- FRNs: FRNs or Floating Rate Notes have variable interest payments based on the yield of 3-month bills. FRNs are only issued with two-year terms and pay interest quarterly.