What You'll Learn Here

I've been buying Treasury bonds for over a decade, and right now the landscape is crazy good. Yields are the highest we've seen since before the 2008 crisis, and with the Fed signaling a pause, it's a sweet spot to lock in. But which Treasury bonds should you actually buy? Let me walk you through the best options today—no fluff, just what I'd tell a friend.

Why Treasury Bonds Make Sense Right Now

After the Fed's aggressive rate hikes, short-term T-bills are paying around 5%—that's basically free money with zero credit risk. Longer-term bonds (10-30 year) are also yielding above 4.5%, something we haven't seen in over a decade. Here's the real kicker: the yield curve is inverted, meaning short-term rates are higher than long-term. That's unusual, and it creates opportunities for laddering strategies. I personally think locking in a 5-year note at 4.7% is a no-brainer for income-focused investors. But don't just grab the highest yield—match the maturity to your spending horizon.

Types of Treasury Bonds: Which One Fits You?

T-Bills (4-Week to 52-Week)

These are short-term securities sold at a discount. Right now, the 26-week T-bill is yielding 5.3%. I use them for emergency savings—better than a high-yield savings account (HYSA) because they're state tax exempt. Downside? You have to reinvest every few months, and rates could drop. But for cash you need within a year, T-bills are the best bet.

T-Notes (2-Year to 10-Year)

These pay semi-annual interest. The 2-year is around 4.9%, the 10-year around 4.6%. I'm favoring the 5-year note at 4.7% right now—good balance of income and duration risk. If you think rates will fall, longer notes lock in a higher yield for longer. Just be aware: if rates rise, the market value of your note drops (but if you hold to maturity, you get your principal back).

T-Bonds (20-Year and 30-Year)

For those with a long horizon. 30-year yields around 4.5%. I personally find them less attractive because of inflation risk over 30 years—even TIPS don't fully protect if real rates change. But retirees with a long payout need might consider a bond ladder. I'd skip the 20-year—the 30-year usually offers a better yield for only 10 more years.

TIPS (Treasury Inflation-Protected Securities)

These adjust principal with inflation. Today's 10-year TIPS yield about 2.2% real yield—that's historically high. If you're scared of inflation, TIPS are a solid hedge. But beware: if deflation hits, your principal can fall (though at maturity you get at least the original amount). I include TIPS for 20% of my fixed income bucket.

I Bonds (Series I Savings Bonds)

These are a separate beast—you buy up to $10,000/year per person. Current composite rate (variable + fixed) is around 4.3% as of the latest reset. I love I Bonds for their tax deferral and inflation protection. Downside: you can't redeem within the first year, and there's a 3-month interest penalty if you sell before 5 years. I keep a small pile for their unique benefits.

How to Buy Treasury Bonds (Step by Step)

You have three main channels:

  • TreasuryDirect.gov: Direct from the government. No fees, but the website feels like it's from 2005. I set up an account there—took about 15 minutes. You can schedule reinvestments. Best for T-bills and I Bonds.
  • Brokerage Account: Fidelity, Schwab, Vanguard. They let you buy secondary market bonds or new issues. I prefer Fidelity—their bond desk shows you yields and bid/ask spreads. Plus you can sell anytime on the secondary market (but you might lose principal).
  • Treasury ETFs: Like BIL (T-bills), SHY (1-3 year), IEF (7-10 year). They pay monthly and are liquid. I use them for tactical allocations because they're easier to trade. But you don't control the maturity ladder.

My advice: buy T-bills via TreasuryDirect for the first few to get comfortable, then use a brokerage for notes and bonds.

Tax Treatment You Can't Ignore

Interest from Treasury bonds is exempt from state and local income taxes. That's a huge deal if you live in a high-tax state like California or New York. For example, a 5% T-bill yielding 5% is equivalent to a 5.3% taxable bond if your state rate is 6%. But it's fully taxable at the federal level. Also, if you sell a Treasury bond before maturity for a gain, that gain is taxed as ordinary income (not capital gains). Keep that in mind if you trade frequently.

Strategy Tips & Common Mistakes

Here's what I've learned the hard way:

  • Don't chase the highest yield blindly. Long-term bonds look tempting, but if you need the money before maturity, you could take a big hit. Match duration to your cash need.
  • Use a bond ladder. Instead of buying one 10-year note, buy some of each: 1,2,3,4,5-year. As each year matures, reinvest at current rates. This smooths out yield changes. I personally maintain a 5-year ladder with T-notes.
  • Don't forget about transaction costs. At TreasuryDirect there are none. At brokerages, markups on secondary bonds can eat 0.5%. Ask for the yield-to-worst and compare.
  • Consider TIPS for unexpected inflation. I learned in 2021 when inflation spiked—my nominal bonds got creamed. Now I keep 20% in TIPS.
  • Watch the auction calendar. You can set a reminder. I buy at the original issue to avoid secondary markups.

Frequently Asked Questions

Should I buy 6-month T-bills now or lock in a 2-year note?
If you think the Fed will cut rates in the next year, the 2-year note locks in a still-high yield for longer. But the 6-month bill pays more now (around 5.3% vs 4.9%). I'm sitting on some 6-month bills to roll over—I expect rates to stay higher for a bit longer.
How do I buy Treasury bonds if I don't have a brokerage account?
Go to TreasuryDirect.gov and create an account. You'll need your Social Security number, bank account for deposits, and an email. The site is clunky but it works. You can buy T-bills, notes, bonds, and I Bonds directly. No fees.
Are Treasury bonds safe from default?
They're backed by the full faith and credit of the U.S. government. Historically, the U.S. has never defaulted. However, the price of a bond can fluctuate in the secondary market if interest rates change. If you hold to maturity, you get back $100 per $100 face value.
What's the difference between TIPS and I Bonds for inflation protection?
TIPS pay interest that adjusts for inflation, and the principal adjusts too. You can buy them in any amount. I Bonds have a $10,000 annual purchase limit but offer tax deferral and a fixed rate component that can be advantageous if held long. For a large portfolio, TIPS are easier. For small savings, I Bonds are great.
Should I buy Treasury bonds through an ETF instead?
ETFs offer liquidity and diversification. But you don't control the maturity—if rates rise, the ETF's price can fall significantly. I use ETFs for tactical adjustments but prefer direct bonds for my ladder. If you're less experienced, start with BIL (for T-bills) or SHY (for short-term notes).

*Data as of latest available yields. Always verify current rates before investing.