government. In the late 1960s, T-Notes
statutorily changed to be one- to seven-
year maturity instruments. The 1970s saw
changes in the competitive auction pro-
cess, as well as the introduction of the now
benchmark 10-year Treasury Note. Like
its T-Bill cousin, the age of paper notes
was coming to an end. In 1982, bearer
forms of T-Notes were discontinued, and
by 1986, the last registered Treasury Note
had been printed.
Today, the 10-year note remains a bed-
rock of global finance. In fact, Treasury
Notes remain far and away the most pop-
ular (and largest) sovereign debt issue in
the world. Mortgage rates, car loans and
a variety of financial instruments remain
highly sensitive to this bond, and the
demand for T-Notes remains seemingly
insatiable. As of May 2017, outstanding
Treasury Notes totaled some $8.7 trillion,
with an average daily trading volume of
around $300 billion.
The Treasury Bond
US government bonds trace their lineage
to the time of the American Revolution.
Fighting the mighty British Empire would
require finance as much as firearms, some-
thing the early Continental Congress was
forced to reckon with. Of course, borrow-
ing money was not the only way to raise it,
and the colonial printing presses did their
fair share. The effects of issuing so much
paper money caused most of it to devalue
quickly, leaving in its wake hyperinflation
and an ingrained mistrust of fiat currency.
When it came to borrowing, founding
fathers such as Benjamin Franklin and
John Adams were able to secure loans
from the French government and the
bankers of Amsterdam. Between the vari-
ous Continental obligations issued during
the war, foreign loans taken out during the
war and paper currency printed during the
war, Alexander Hamilton had a full plate
when he assumed his newly-created role as
Secretary of the Treasury in 1789.
Hamilton was a strong believer in paying
the debts undertaken by the new repub-
lic, both for moral and practical reasons.
America would need to have access to debt
markets going forward, and the borrow-
ing capabilities of the government would
be directly correlated to its perceived
“All money
is a matter
of belief.”
— Adam Smith
creditworthiness. America would pay its
bonds.
And did America borrow. The 19th
century saw extensive debt issuance. The
nation borrowed for everything from the
Louisiana Purchase to the Spanish-Amer-
ican War. Treasury Bonds, issued as both
coupon and registered securities (and in
some cases a hybrid), became a perma-
nent part of American finance. Except
for a one-year hiatus during Jackson’s
presidency, the country has been in debt
throughout its entire existence.
With the introduction of a national
currency during the Civil War, the fed-
eral government needed a robust market
for its debt, especially considering the
challenges facing the new national bank
system. A history of state and local banks
printing worthless paper money was not
easily overcome in the minds of many.
And given the demands for specie, what
was going to back the currency of the
many new nationally-chartered banks?
Treasury Bonds.
Every nationally-chartered bank, no
matter how small, would secure its bank
notes with government bonds. So no mat-
ter the size or lifespan of the bank, its
currency (standardized and eventually
printed by the BEP) was sound money.
Meanwhile, the government got new cus-
tomers for its bonds — the thousands of
national banks that would come into exis-
tence. The century ended with some $2
billion of national debt on the books. And
if Treasury Bonds were akin to a young
debutante, then the 20th century would be
the grandest cotillion of them all.
The Liberty Loan issuance of WWI saw
the Treasury Bond market expand. Over
the course of a few short years, the Trea-
sury successfully sold $17 billion in bonds
over four Liberty Loan issues. As men-
tioned, the Fifth (Victory) Loan was in fact
a Treasury Note. The war was a turning
point for government debt, the effects of
which remain with us today.
The Second Liberty Loan Act continues
to authorize Treasury debt to this day. 1935
saw a widespread introduction of non-
marketable debt, the US Savings Bond
program. And while these bonds helped
finance WWII, marketable bond issuance
did not slow down.
The Treasury Bond market was a
global financial force. The December 1945
Monthly Statement of the Public Debt
shows 47 separate T-Bond issues, dating
from 1922 onward. The original issuance
value of these securities totaled approxi-
mately $120 billion.
As the century progressed, the Trea-
sury continued to issue bonds on the long
end of the spectrum. It also experimented
with different features. There were 30-year
securities, 40-year securities, flower bonds
(redeemable immediately at par for the pur-
pose of paying estate taxes) and even a one-
time issue of a split-interest rate security.
1981 saw the last bearer bond issued, as
all things bearer were coming to an end.
Registered bonds followed in 1986, and
the age of paper Treasuries was all but
over. In May 2016, the last registered long
bonds matured. After over 200 years of
issuance, marketable Treasury Bonds were
no longer on paper. As of May 2017, the
outstanding value of T-Bonds exceeded
$1.9 trillion, with a trading volume of over
$100 billion daily.
The US Dollar
The dollar is the only American financial
paper left. After two centuries of history, the
mightiest economy in world history largely
exists in an electronic “cloud” — to use the
parlance of our time. For most Americans,
cash is a tool for daily transactions. And
with the ease of credit/debit cards, it is not
uncommon to find working adults with
little or no currency in their wallets.
www.MoAF.org | Fall 2017 | FINANCIAL HISTORY 35