High-Yield Treasury Bonds: How to Invest in Government Securities

Treasury bonds are a key part of the global financial system. Issued by the US government, they’re used to raise money and are widely seen as one of the more reliable investment options available. Because they’re backed by the government, many investors use them to bring stability to their portfolios or to earn steady income over time.

But not all Treasury bonds are created equal – some offer better returns compared to others. These are known as high-yield Treasury bonds. With interest rates shifting and inflation still in the picture, these bonds have become more relevant for investors looking for better protection and growth for their money.In this article, we’ll explain what Treasury bonds are, how high-yield options work, and what affects their value. We’ll also look at how you can invest in them directly or gain exposure through Bonds CFDs on platforms like PU Prime, where you can trade based on price 

What Are Treasury Bonds?

Treasury bonds are one type of debt security issued by the US federal government to help fund public spending. When you invest in one, you’re essentially lending money to the government in return for regular interest payments and the promise of getting your money back in full when the bond reaches maturity.

Types of Treasury Securities

There are three main types of US Treasury securities, and the key difference between them is how long they last.

• Treasury Bills (T-bills): Short-term securities that mature in a year or less. They don’t pay interest regularly. Instead, they’re sold at a discount, and you get the full value when they mature.
• Treasury Notes (T-notes): Medium-term bonds with maturities ranging from 2 to 10 years. They pay interest every six months. 
• Treasury Bonds (T-bonds): Long-term investments that mature in 20 or 30 years, also with semi-annual interest payments. These are the focus when people talk about long-duration or high-yield Treasuries.

Together, these make up what’s known as the Treasury market or government bond market.

Coupon vs Zero-Coupon 

Most Treasury bonds are coupon bonds, which means they pay interest at a fixed rate every six months. This interest is known as the coupon. The amount doesn’t change once the bond is issued, which is why the bond’s price in the market can fluctuate if interest rates move.

There are also zero-coupon Treasuries, which don’t make regular interest payments. Instead, they’re sold at a discount and mature at face value. The difference between what you paid and what you receive at maturity is your return.

How Treasury Bonds Are Issued 

New Treasury securities (a Treasury bond is a type of Treasury security) are sold through auctions held by the US Department of the Treasury. Investors can bid either competitively (where they set the yield they want) or non-competitively (where they accept whatever yield the auction sets). Most individual investors choose the non-competitive route, which guarantees they’ll get the bond, but not a specific interest rate.

Once issued, bonds can be traded on the secondary market, just like shares. Their price will go up or down depending on things like interest rate changes, inflation expectations, and overall demand. This means you don’t have to hold a bond until maturity; you can buy and sell Treasuries at market prices along the way.

What is the Highest Yield on Treasury Bonds?

When investors talk about “high-yield” Treasury bonds, they’re usually referring to bonds that are paying more interest than usual based on current market conditions. But what does that actually mean in context?

How Yields Are Measured

Yield is the return you earn from holding a bond. For Treasury bonds, it’s often quoted as a percentage (this tells you how much you’ll earn each year based on the bond’s price and interest payments). If you buy a bond at its original price, the yield will usually match the coupon rate. But if you buy it at a discount or premium on the secondary market, the yield can be quite different.

Treasury Bonds Historic Highs and Lows

Over time, Treasury bond yields have moved up and down in response to inflation, interest rates, and economic outlook. In the early 1980s, yields hit record highs, with some long-term bonds offering returns above 15 per cent. This was due to extremely high inflation and aggressive rate hikes by the Federal Reserve.

In contrast, after the global financial crisis and again during the COVID-19 pandemic, yields dropped to historic lows. Some short-term government debt even offered negative real returns when adjusted for inflation.

The Yield Curve Explained

The yield curve is a chart that shows how yields change depending on the length of the bond. Normally, longer-term bonds offer higher yields to compensate for locking up your money for more time. But sometimes, the curve “inverts,” meaning short-term bonds pay more than long-term ones. This often happens when investors expect interest rates to fall in the future or are worried about an economic slowdown.

Right now, there’s increased attention on the difference between 30-year bonds and shorter-term options like 2-year or 10-year notes, as yields have climbed from historic lows. High-yield Treasuries today may refer to longer-term bonds issued during a time of rising rates, which now offer more attractive returns than they did just a few years ago.

Source: Federal Reserve Board

Source: Federal Reserve Board

How Much Does a $1,000 T-Bill Cost?

A Treasury bill, or T-bill, is a short-term government security that doesn’t pay interest in the traditional sense. Instead, it’s sold at a discounted price, and you earn a return when it reaches its full face value (also called par value) at maturity.

So, if you buy a $1,000 T-bill, you won’t actually pay $1,000 upfront. Instead, you might pay something like $970 or $980, depending on the current yield and how long the bill will take to mature. When the T-bill reaches maturity, you receive the full $1,000, and the difference between what you paid and what you get back is your profit.

As an example only, if you buy a 6-month T-bill for $980, you’ll make $20 when it matures, giving you a simple return of about 2.04% over that period. Because there are no regular interest payments, this gain is your entire return from holding the bill.

T-bills are issued with terms of 4, 8, 13, 26, or 52 weeks, and are often seen as a low-risk way to park cash over a short period. They’re also popular during times of economic uncertainty, since they’re backed by the US government and offer a predictable outcome if held to maturity.

What is the 6-Month Treasury Rate Today?

The 6-month Treasury rate refers to the interest you would earn on a government-issued Treasury bill that matures in six months. It’s one of the most closely watched short-term rates, often used as a benchmark for savings products, loans, and short-term investment strategies.As of mid-May 2025, the 6-month Treasury rate is hovering around 4.12% to 4.13%, based on data from the US Department of the Treasury and the Federal Reserve. These rates are published regularly and can fluctuate daily, depending on demand, market conditions, and monetary policy.

Where to Check Current Rates

If you want the most up-to-date numbers, you can check TreasuryDirect.gov, the Federal Reserve H.15 Report or financial news outlets.

What Affects the 6-Month Rate?

Several factors can cause short-term rates to rise or fall, including Federal Reserve interest rate decisions, inflation expectations, demand for safe assets during uncertain times and Treasury auction outcomes.

Shorter-term Treasuries like the 6-month bill tend to respond more quickly to rate changes by the central bank. When the Fed raises or lowers its benchmark rate, yields on Treasury bills usually adjust shortly after.

How Much Could I Make on a 3‑Month Treasury Bond?

Let’s walk through a simple example of how a 3-month Treasury bond might work. Keep in mind, this is just a hypothetical scenario to help explain how returns are calculated. It’s not a forecast or guarantee of what you’ll earn.

Example Scenario

Say you purchase a 3-month Treasury bill with a face value of $1,000, and you buy it at a discounted price of $990. This means you’re paying $990 upfront, and when the bill matures in 3 months, you’ll receive the full $1,000 back.

Your return in this case is the difference between the purchase price and the amount you get back at maturity:

• $1,000 – $990 = $10

This $10 is your interest income for the 3-month period. To understand how that compares on an annual basis, you can annualise the yield:

Annualised yield ≈ (10 ÷ 990) × (365 ÷ 90) × 100 = approx. 4.04%

This is a rough estimate of the effective annual rate, assuming you could reinvest each quarter at the same rate, which may or may not be possible in real-world conditions.

T-Bill Reinvestment Considerations

If you plan to hold short-term bills like this regularly, it can be worth thinking about what happens when each bill matures. Will you reinvest at the same rate? Will rates have changed by then? These are key questions, especially in a shifting interest rate environment. Also, remember that the interest you earn may be subject to tax, depending on your jurisdiction and investment structure.

Understanding Treasury Bond Pricing and Interest Rates

To understand how Treasury bonds behave, it helps to know how bond prices and interest rates are connected. This is one of the most important concepts in fixed-income investing, and one of the easiest to overlook.

When Rates Go Up, Bond Prices Go Down

There’s an inverse relationship between interest rates and bond prices. That means when interest rates rise, the market value of existing bonds tends to fall. Why? Because new bonds are being issued with higher yields, making older ones less attractive unless they’re sold at a discount.

Let’s say you’re holding a 10-year bond that pays 3 percent interest. If new bonds are now paying 4 percent, investors won’t want yours unless you lower the price. This adjustment is what keeps yields aligned across the market.

On the flip side, when rates fall, older bonds with higher interest payments become more valuable, and their prices go up.

What is a Discount Rate?

When Treasury bills are issued at a discount (meaning you pay less than the face value), the discount rate reflects the implied yield based on how much you pay and how long the bill takes to mature. The bigger the discount, the higher your return at maturity. This is different from coupon-paying bonds, where the price moves in response to changes in market interest rates.

Duration and Interest Rate Risk

The longer a bond’s duration, the more sensitive it is to changes in interest rates. Duration is a measure of how long it takes, on average, to get your money back from a bond, factoring in all future payments.

Bonds with long durations – like 20- or 30-year Treasury bonds – can rise sharply in value when rates fall, but they can also drop more when rates go up. This is known as interest rate risk, and it’s something to keep in mind if you’re thinking about long-term bonds in a changing rate environment.

I Bonds Interest Rates: How They Work

I Bonds (short for Series I Savings Bonds) are a type of US government bond designed to help protect your money from inflation. I Bonds are seen as a conservative, inflation-aware savings tool. They’re different from Treasury notes, bonds, or bills that are traded in public markets and can fluctuate in price. What makes I Bonds unique is how their interest rate is calculated: it changes over time based on inflation.

How I Bond Rates Are Calculated

The total rate you earn on an I Bond is made up of two parts: a fixed rate, which stays the same for the life of the bond; and an inflation rate, which is adjusted every six months based on changes in the Consumer Price Index (CPI).

The formula used is: I Bond Rate = Fixed Rate + (2 × Inflation Rate) + (Fixed Rate × Inflation Rate)

That might sound complex, but the main thing to know is this: when inflation rises, so does your return. When inflation falls, the bond adjusts downward, but never below zero in real terms.

Purchase Limits and Rules

You can buy up to $10,000 worth of I Bonds per calendar year per person through TreasuryDirect.gov, and up to an additional $5,000 with your tax refund. Unlike market-traded Treasuries, I Bonds aren’t bought or sold on an exchange.

They must be held for at least one year, and if you cash them in before five years, you’ll lose the last three months of interest. After five years, there’s no penalty.

How I Bonds Compare to Standard Treasuries

• Inflation protection: I Bonds adjust with inflation, while standard Treasury bonds (like 10-year or 30-year bonds) have a fixed coupon and can lose purchasing power if inflation rises.
• Access: I Bonds are not available through brokers or trading platforms. They must be bought directly from the government.
• Potential tax advantages: Interest from I Bonds is exempt from state and local tax, and federal tax can be deferred until redemption or maturity.

Treasury Inflation-Protected Securities (TIPS)

TIPS are US government bonds that adjust for inflation. Unlike regular bonds, the principal value of a TIPS bond increases with inflation and decreases if prices fall, based on the CPI. 

The interest payments are calculated using a fixed rate, but that rate is applied to the inflation-adjusted principal, so as inflation rises, your interest payments can rise too.

TIPS are available in maturities of 5, 10, and 30 years, and like other Treasuries, they pay interest every six months.

Why TIPS Matter

TIPS can help protect your money from losing value over time. They’re common with long-term investors who want more certainty that their savings will keep up with the cost of living.

Break-Even Inflation Rate

This is the tipping point where TIPS and standard Treasury bonds of the same maturity would earn the same return. If inflation ends up higher than the break-even rate, TIPS are more likely to perform better.

When to Consider TIPS

TIPS can be useful when inflation is high or rising. They’re seen as a hedging tool, but like all bonds, they can still lose value if interest rates rise quickly.

It’s important to remember that while TIPS adjust for inflation, they’re still subject to interest rate movements like other bonds. If rates go up significantly, the market value of TIPS can fall, just like regular fixed-income securities.

United States Rates & Bonds Overview

As of mid-2025, US Treasury yields remain elevated compared to recent years, reflecting ongoing efforts by the Federal Reserve to manage inflation. The yield curve is currently inverted, meaning shorter-term bonds (like the 2-year) are offering higher yields than longer-term ones (like the 10- or 30-year). This often signals market expectations of future rate cuts or economic slowdown.

The Fed has kept interest rates steady after a series of hikes in 2023 and 2024. While inflation has cooled, it’s still above target, keeping pressure on yields and influencing investor demand for Treasury securities.

Macroeconomic factors such as wage growth, consumer spending, and global demand for safe assets continue to shape movements in the bond market. For investors, US Treasuries remain a key tool for income, capital preservation, and portfolio stability, whether accessed directly or through instruments like CFDs.

US 10-Year Treasury Bond Note Yield

The 10-year US Treasury bond is one of the most closely watched financial indicators in the world. It’s considered a global benchmark because it reflects market expectations for economic growth, inflation, and interest rates over the medium to long term.

As of mid-2025, the 10-year yield is sitting at elevated levels compared to recent years, largely due to persistent inflation pressures and the Federal Reserve’s cautious stance on rate cuts. Movements in this yield are seen as a signal of investor sentiment: when yields rise, it often means investors expect higher inflation or stronger growth. When they fall, it can suggest a shift toward safer assets or concern about the economy slowing down.

Because of its role in pricing everything from mortgages to corporate loans, the 10-year Treasury has a wide impact across financial markets. It also helps investors gauge whether now is a favourable time to lock in bond exposure or to stay flexible with shorter-term instruments.

Tax Implications of Treasury Bonds

Federal vs State Tax

Interest earned from US Treasury securities is subject to federal income tax. However, it’s exempt from state and local taxes.

TIPS and Taxable Adjustments

For TIPS, both the interest and the adjustments to the principal due to inflation are taxable at the federal level. This may result in a higher tax bill, even though you don’t receive the inflation adjustment as cash until maturity. It’s sometimes referred to as “phantom income.”

CFD Tax Treatment

If you’re trading Treasury bond CFDs on platforms like PU Prime, you’re not earning bond interest: you’re speculating on price movements. As a result, your gains or losses are typically treated as capital gains or trading income, depending on your tax status and local laws. No interest income means the tax profile is different from owning the bond directly.

It’s always best to speak with a tax adviser to understand how these rules apply to your personal situation. Tax laws can vary by jurisdiction, and small differences in structure can impact your returns.

Treasury Bonds Risks & Considerations

While Treasury bonds are often seen as low-risk, as with most investment products, they’re not risk-free. Understanding the potential downsides can help you decide if they fit your strategy.

Interest Rate Risk

The biggest risk for most bondholders is interest rate risk. When interest rates rise, bond prices tend to fall. If you need to sell your bond before it matures, you might get back less than you paid.

Inflation and Deflation Risk

Inflation can erode the real value of your fixed interest payments, meaning your money buys less over time. This is why some investors prefer inflation-linked bonds like TIPS. On the flip side, deflation can make regular bonds more valuable, but it also signals weak economic conditions.

Reinvestment Risk

If you hold short-term Treasury bills, you may face reinvestment risk: the risk that when your bill matures, you won’t be able to reinvest at the same or better rate.

Opportunity Cost

Treasuries are considered safe, but they tend to offer lower yields compared to riskier investments like corporate bonds or shares. The trade-off is security versus return. In strong markets, the opportunity cost of holding Treasuries can be high.

Liquidity and Market Pricing

Most Treasuries are very liquid, but older bonds that are no longer issued (known as off-the-run issues) can be harder to trade and may not fetch the best price. This matters more if you plan to sell before maturity.

Understanding these risks helps put Treasury bonds in context. They’re not a one-size-fits-all solution, but for many investors, they remain a valuable tool for stability, income, or portfolio diversification.

Could High-Yield Treasury Bonds Work for You?

High-yield Treasury bonds may fit your portfolio if you’re looking for steadier returns and want to balance out risk in your portfolio. They’re considered relatively low risk, but like any investment, they still respond to things like interest rate changes and inflation.

If you’d prefer to trade on bond price movements without owning the bonds directly, PU Prime offers access to Treasury markets through CFDs. This can give you more flexibility, especially if you’re looking for short-term opportunities or want to diversify beyond shares and currencies.

Find out more about Bond CFD Trading