The fixed-income market includes Treasury securities. Treasury securities refer to the debt obligations of the United States bought and sold to maintain the functioning of the government. The Department of the Treasury has apportioned different securities to perform these activities, which range from short-term bills, which are all under one year in maturity, and long-term securities, which include notes and bonds maturing anywhere from two to thirty years from the time they are sold.

Until 2001, three-month bills were the shortest-maturing securities offered. But in July 2001, the Treasury introduced 4-week bills in a weekly auction setting in order to smooth out seasonal fluctuations in cash flows. These securities, along with three and six month bills are sold at weekly auctions with a face value of $1000, where investors can either participate directly in the auctions electronically or buy through securities brokers. These securities are bought at a face value and sold at a discount. For example, if one buys 10 bills at a discount rate of 5%, the investors pays 95% of the face value ($9500), will receive $10,000 at maturity, one, three or six months later. Beginning in October 2005, TreasuryDirect online account holders are able to submit noncompetitive bids for any marketable Treasury bills, notes, bonds and TIPS.

One-year, or 52-week bills, were sold at regularly scheduled public auctions, which used to take place monthly, but in March 2000, the Treasury decided to reduce the supply of these securities and announced that the 52-week bill auctions would take place quarterly. February 2001 marked the last auction of these 52-week bills, as the Treasury has decided to remove entirely this security from the auction schedule.

Two-year notes are intermediate Treasury securities sold at regularly scheduled monthly public auctions. Notes are not sold at a discount to the face value like bills. Instead, investors buy a note for $1000, and receive interest payments every six months based on the coupon rate. (For instance, if the rate is 6 percent, investors get $30 every six months.) When the note matures, the original investment of $1000, called the principal, is returned.

Three-year notes are intermediate Treasury securities sold at regularly scheduled quarterly public auctions. Three-year notes are purchased in the same fashion as 2-year notes: investors buy a note for $1000, and receive interest payments every six months based on the coupon rate. (For instance, a 6 percent coupon rate yields the investor $60 per year in two semi-annual installments of $30.) When the note matures, the original investment of $1000 is returned.

Five-year notes are sold at regularly scheduled monthly auctions and investors purchase the securities in increments of $1000 and receive interest payments based on the coupon rate twice a year. As the maturity period lengthens, the risk element of Treasury securities increases. The longer a security is held, the more it is subject to inflation risk and opportunity risk. Inflation risk refers to the erosion of the value of interest payments and the principal paid at the end of the security's maturity cycle. Opportunity risk refers to what would have been earned had an investor invested the money elsewhere.

Ten-year notes are the longest-termed intermediate security, and are sold to investors in the same manner as 2-year, 3-year and 5-year notes. They are auctioned eight times a year on a regular schedule. The ten-year note gained a reputation as the benchmark security for the fixed-income market as the supply of thirty-year bonds has dwindled. Treasury securities are considered risk-free because they are free from default risk. They are not free from inflation risk or opportunity risk.

Since the late 1970s, the thirty-year bond was the U.S. Treasury's longest-term security. From 1993 to 2001, it had been sold at auction two to three times per year depending on the Treasury's borrowing needs. In 2000, the Treasury began to reduce the quantity of thirty-year bonds sold to the public and in October 2001, the Treasury suspended indefinitely 30-year bond auctions. Thirty-year bonds were not eliminated entirely, although most bonds in circulation had fewer than 30-years to expiration. In 2005, the Treasury announced that it would once again offer 30-year bonds and the first auction took place in February 2006. Historically, 30-year bonds were auctioned in February and August. The Treasury suggested that it might auction 30-year bonds more frequently in 2007, but keep in mind that the Treasury can change the auction schedule at any time.

In addition to these securities, the Treasury also offers TIPS, Treasury Inflation-Protected Securities. These securities protect investors against inflation. The principal of a TIPS increases with inflation and decreases with deflation as measured by the Consumer Price Index. The U.S. Treasury pays the greater amount of the adjusted principal or the original principal. Just like other Treasury notes and bonds, TIPS pay interest twice a year based on a coupon rate. This rate is applied to the principal, so that interest rates are also adjusted for inflation. For a given maturity, the coupon rate on TIPS is lower than for the equivalent note. For instance, the coupon rate of a 5-year TIPS will be lower than the coupon rate of a 5-year note. If inflation is rapidly accelerating, an investor might be better off with the TIP than the regular note. However, it does depend on the coupon rate and the rate of inflation.

The U.S. Treasury has scheduled the following TIPS auctions in 2007:
Two 5-year TIPS auctions for 2007 -- in April and as a reopening in October; four 10-year TIPS -- in January and July, and as reopenings in April and October and two 20-year TIPS -- in January, and as a reopening in July. The size and quantity of these auctions can be changed at any time, just as it is for other Treasury securities.