What Is a 10-Year Treasury Note?

The 10-year Treasury note is a debt obligation issued by the United States government with a maturity of 10 years upon initial issuance. A 10-year Treasury note pays interest at a fixed rate once every six months and pays the face value to the holder at maturity. The U.S. government partially funds itself by issuing 10-year Treasury notes.

Understanding 10-Year Treasury Notes

The U.S. government issues three different types of debt securities to fund its obligations: Treasury bills, Treasury notes, and Treasury bonds. Bills, bonds, and notes are distinguished by their length of maturity.

Treasury bills (T-bills) have the shortest maturities, with durations only up to a year. The Treasury offers T-bills with maturities of four, eight, 13, 26, and 52 weeks. Treasury notes have maturities ranging from a year to 10 years, while bonds are Treasury securities with maturities longer than 10 years.

Treasury notes and bonds pay interest at a fixed rate every six months to maturity, and are then redeemed at par value, meaning the Treasury repays the principal it borrowed.

In contrast, T-bills are issued at discounts to par and pay no coupon payments. The interest earned on T-bills is the difference between the face value repaid at maturity and the purchase price paid.

The 10-Year Note Yield as a Benchmark

The 10-year T-note is the most widely tracked government debt instrument in finance. Its yield is often used as a benchmark for other interest rates, like those on mortgages and corporate debt, though commercial interest rates do not track the 10-year yield exactly.

Below is a chart of the 10-year Treasury yield from March 2019 to March 2020. Over that span, the yield steadily declined with expectations that the Federal Reserve would maintain low interest rates or cut them further. In late February 2020, the decline in yield accelerated amid growing concerns about the economic effects of the COVID-19 pandemic. As the Fed ordered an emergency rate cut of 50 basis points in early March, the decline of the 10-year yield accelerated even further, with the yield dropping to 0.32%, a record low, before rebounding.

The Advantages of Investing in Treasury Notes

Fixed-income securities offer important portfolio diversification benefits, because their returns are not correlated with the performance of stocks.

Government debt and the 10-year Treasury note in particular is considered a relatively safe investment, so its price often (but not always) moves inversely to the trend of the major stock-market indices. In a recession, central banks tend to lower interest rates, which lowers the coupon rate on new Treasuries and, subsequently, makes older Treasury securities with higher coupon rates more desirable.

Another advantage of investing in 10-year Treasury notes and other federal government securities is that the coupon payments are exempt from state and local income taxes. However, they are still taxable at the federal level. The U.S. Treasury sells 10-year notes and those with shorter maturities, as well as T-bills and bonds, directly through the TreasuryDirect website via competitive or noncompetitive bidding, with a minimum purchase of $100 and in $100 increments. Treasury securities can also be purchased through a bank or broker.

Investors can choose to hold Treasury notes until maturity or sell them early in the secondary market. There is no minimum holding term. Although the Treasury issues new T-notes of shorter maturities every month, new 10-year notes are issued only in February, May, August, and November. In other months, the Treasury sells additional 10-year notes from the most recent issue in what is known as a re-opening. Re-opened notes have the same maturity date and coupon interest rate as the original issue, but a different issue date and a purchase price reflecting subsequent change in market interest rates.

All T-notes are issued electronically, meaning investors cannot obtain paper certificates. Series I Savings Bonds are the only Treasury securities currently issued in paper form, and they can only be bought in paper form with the proceeds of a tax refund.

Failure to Meet Form 10-Q Filing Deadline

When a company fails to file a 10-Q by the filing deadline, it must use a non-timely (NT) filing. An NT filing must explain why the deadline has not been achieved, and it gives the company an additional five days to file. Companies are required to submit an NT 10-Q to request the extension and explain the delay.

As long as a company has a reasonable explanation, the SEC allows late filings within a specified time period. Common reasons why companies are not able to file on time include mergers and acquisitions (M&A), corporate litigation, an ongoing review by corporate auditors, or lingering effects from a bankruptcy.

A 10-Q filing is considered timely if it is filed within this extension. Failure to comply with this extended deadline results in consequences, including the potential loss of the SEC registration, removal from stock exchanges, and legal ramifications.

Components of SEC Form 10-Q

There are two parts to a 10-Q filing. The first part contains relevant financial information covering the period. This includes condensed financial statements, management discussion, and analysis on the financial condition of the entity, disclosures regarding market risk, and internal controls.

The second part contains all other pertinent information. This includes legal proceedings, unregistered sales of equity securities, the use of proceeds from the sale of unregistered sales of equity, and defaults upon senior securities. The company discloses any other information—including the use of exhibits—in this section.

Importance of SEC Form 10-Q

The 10-Q provides a window into the financial health of the company. Investors can use the form to get a sense of its quarterly earnings and other elements of its operations, and to compare them to previous quarters—thus tracking its performance.

Some areas of interest to investors that are commonly visible in the 10-Q include changes to working capital and/or accounts receivables, factors affecting a company’s inventory, share buybacks, and even any legal risks that a company faces.

You can use a close competitor’s 10-Q to compare that to a company in which you are invested, or considering to invest in, to see how it’s performing. This will give you an idea of whether it’s a strong choice, where its weaknesses are, and how it could stand to improve.

Other Important SEC Filings

The 10-Q is one of many reports public companies are required to file with the SEC. Other important and mandated filings include:

Form 10-K: The 10-K must be filed once per year and includes the final quarter of the company’s performance (replacing a fourth-quarter 10-Q). This report serves as a summary of the year, often containing more detailed information than an annual report, and must be filed within 90 days of the end of a company’s fiscal year. The 10-K generally includes a summary of the company’s operations, management’s financial outlook, financial statements, and any legal or administrative issues involving the company.

Form 8-K: This report is filed if there are any changes or developments to a business that didn’t make the 10-Q or 10-K reports. This is considered an unscheduled document and may contain information such as press releases. If a company disposes of or acquires assets, has announcements of executive hiring or departures, or goes into receivership, this information is filed with an 8-K.

Annual report: A company’s annual report is filed every year, and contains a wealth of company news including—but not limited to—general information about the company, a letter to shareholders from the CEO, financial statements, and an auditors report. This report is submitted a few months after the end of a company’s fiscal year. The report is available through a company’s website or investor relations team, and can also be obtained from the SEC.

Form 10-Q FAQs

What Is a 10-Q Filing?

A 10-Q filing is a report that all public companies must submit to the Securities and Exchange Commission (SEC) after the end of each of their first three fiscal quarters (hence the “Q”). The filing is submitted by filling out a Form 10-Q.

What Is the Difference Between a 10-K and a 10-Q?

The main difference between Forms 10-K and 10-Q lies in the frequency and the amount of info they contain. Form 10-K is an annual report, filed at the end of a company’s fiscal year. Filed just once, it summarizes all the data for the year, including the fourth quarter. In contrast, Form 10-Q is filed three times a year, at the end of a company’s fiscal quarter. It details financial info for that quarter.

Also, Form 10-K is an audited report. Form 10-Q generally is not.

Are Public Companies Required to File Form 10-Q?

Yes, all U. S. public companies issuing common shares of stock that trade on exchanges are required to file Form 10-Q. The date by which they have to file varies on the number of shares, expressed in terms of dollar worth, they have outstanding.

Must Review Reports Accompany Financial Statements in a 10-Q?

10-Qs generally are not audited or accompanied by accountants’ reports. SEC regulations prohibit companies from making materially false or misleading statements, or omitting material information to make disclosures not misleading. The SEC staff reviews 10-Qs and may provide comments to a company where disclosures appear to be inconsistent with the disclosure requirements or deficient in explanation or clarity.

What Is a 12B-1 Fee?

A 12b-1 fee is an annual marketing or distribution fee on a mutual fund. The 12b-1 fee is considered to be an operational expense and, as such, is included in a fund’s expense ratio. It is generally between 0.25% and 0.75% (the maximum allowed) of a fund’s net assets. The fee gets its name from a section of the Investment Company Act of 1940.

Understanding 12B-1 Fees

Back in the early days of the mutual fund business, the 12b-1 fee was thought to help investors. It was believed that by marketing a mutual fund, its assets would increase and management could lower expenses because of economies of scale. This has yet to be proven. With mutual fund assets passing the $10 trillion mark and growing steadily, critics of this fee are seriously questioning the justification for using it. Today, the 12b-1 fee is mainly used to reward intermediaries for selling a fund’s shares. As a commission paid to salespersons, it is currently believed to do nothing to enhance the performance of a fund.

In 2015, the Securities and Exchange Commission (SEC) began examining the use of 12b-1 fees to determine if the rules for charging these fees are being adhered to and the presence of such fees is being properly disclosed.

12b-1 Fee Broken Down

The 12b-1 fee can be broken down into two distinct charges: the distribution and marketing fee and the service fee. Total 12b-1 fees charged by a fund are limited to 1% annually. The distribution and marketing piece of the fee is capped at 0.75% annually, while the service fee portion of the fee can be up to 0.25%.

Use of 12b-1 in Broker-Sold Shares

Class B and class C shares of broker-sold funds typically have 12b-1 fees, but they may also be charged on no-load mutual fund shares and class A broker-sold shares.

Class A shares, which usually charge a front-end load but no back-end load, may come with a reduced 12b-1 expense but normally don’t come with the maximum 1% fee. Class B shares, which typically carry no front-end but charge a back-end load that decreases as time passes, often come with a 12b-1 fee. Class C shares usually have the greatest likelihood of carrying the maximum 1% 12b-1 fee. The presence of a 12b-1 fee frequently pushes the overall expense ratio on a fund to above 2%.

The Calamos Growth Fund is an example of a fund that carries a smaller 0.25% 12b-1 fee on its class A shares and charges the maximum 1% 12b-1 fee on its class C shares.

What 12b-1 Fees Are Used For

The distribution fee covers marketing and paying brokers who sell shares. They also go toward advertising the fund and mailing fund literature and prospectuses to clients. Shareholder service fees, another form, specifically pay for the fund to hire people to answer investor inquiries and distribute information when necessary, though these fees may be required without the adoption of a 12b-1 plan. Another category of fees that can be charged is known as “other expenses.” Other expenses can include costs associated with legal, accounting, and administrative services. They may also pay for transfer agent and custodial fees.