This is obviously a very basic question:

Does the interest rate change on a given US Treasury Bond as the market rate changes?

For example: Let's say I buy a T-bill today, and the rate on the bill is 2%. Then, a year later, if the going rate is, say, 1%, will the T-Bill I bought last year still be at 2%, or will it have changed, and now pay only 1%?

Or, put another way: Is my investment guaranteed when I buy T-Bill, or does is the rate of return on my investment subject to market changes?

  • 2
    Think of it this way, it's basically a loan to the government, so that rate is locked in. Like a car loan or fixed rate mortgage. You are giving a loan, instead of receiving a loan.
    – Matt
    Commented Oct 1, 2011 at 11:40
  • 2
    Quick FYI: Somebody voted this question as off-topic for this site (money SE), but it is not. Individual investors buy these securities all the time and understanding how they work is certainly on topic. Commented Oct 3, 2011 at 13:28

5 Answers 5


According to Wikipedia, Treasury bills mature in 1 year or less to a fixed face value:

Treasury bills (or T-Bills) mature in one year or less.

Regular weekly T-Bills are commonly issued with maturity dates of 28 days (or 4 weeks, about a month), 91 days (or 13 weeks, about 3 months), 182 days (or 26 weeks, about 6 months), and 364 days (or 52 weeks, about 1 year). Treasury bills are sold by single-price auctions held weekly.

The T-bills (as Wikipedia says, like zero-coupon bonds) are actually sold at a discount to their face value and mature to their face value. They do not return any interest before the date of maturity. Because the amount earned is fixed at purchase, "return" is a more accurate term than "rate" when referring to a specific T-bill.

The "rate" is the difference between this return and the discount value you purchased it at.

So, yes, your rate of return is guaranteed.

T-notes (1-10 year) and T-bonds (20-30 year) also have an interest rate guaranteed, but have coupon payments (usually every 6 months), paying out a fixed amount of interest on the principal. (See more info on the same Wikipedia page.)

Because those bonds are not compounding the interest it pays out, but instead paying out every 6 months, you'd have to purchase new securities to create a compound return, changing your rate of return over time slightly as the rates for new treasury securities changes.

  • An explanation on the downvote would be helpful.
    – Nicole
    Commented Oct 7, 2011 at 14:19

When you buy a bond - you're giving a loan to the issuer. The interest rate on the bond is the interest rate on the loan.

Usually (and this is also the case with the treasury bonds), the rate is fixed for the term of the loan. Thus, if the market rate for similar loans a year later is higher, the rate for the loan you gave - remains the same.


The rate of the bond is fixed. But there is a risk known as "interest rate risk". Basically, if you have a 2 percent bond and market rates are 4 percent, you'll have to offer your bond at a discount or nobody would buy it.

So if you ever needed to sell it, you'd lose a bit of money.


Yes, the interest rate on a Treasury does change as market rates change, through changes in the price. But once you purchase the instrument, the rate you get is locked in.

The cashflows on a treasury are fixed. So if the market rate increase, the present value of those future cashflows decreases, so the price of the treasury decreases. If you buy the bond after this happens, you would pay a lower price for the same fixed cashflows, hence you will receive a higher rate.

Note that once you purchase the treasury instrument, your returns are locked in and guaranteed, as others have mentioned.

Also note that you should distinguish between Treasury Bills and Treasury Bonds, which you seem to use interchangeably. Straight from the horse's mouth, http://www.treasurydirect.gov/indiv/products/products.htm: Treasury Bills are short term securities with maturity up to a year, Treasury Notes are medium term securities with maturity between 1 and 10 years, and Treasury Bonds are anything over 10 years.


No, the interest payments you receive do not change.

To help avoid confusion, it is better to call those payments the coupons of the bond. Each treasury note or bond is issued with a certain coupon that remains fixed throughout its whole life.

However, as the general level of bank interest rates change maybe because the FED is moving its deposit rate for banks, the value of the treasury bond will change. At maturity it will always be worth its face value, but at any time before that its price will depend on the general level of interest rates in the country.

Because of the way a bond is structured, it is usually possible to convert the bond's price into a yield, which is usually a percentage like 3% or sometwhere near the current level of general interest rates.

But don't be confused, this yield is just an alternative way of stating the current price of the treasury bond, and it changes as the prices of the bond changes.

It is not the coupon that is changing, but the yield.

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