Yes, you can sell most bonds before maturity, but the path depends on what you own. Treasuries, municipal bonds, and corporate bonds are marketable securities you can sell any day the market is open through a brokerage account. U.S. savings bonds (Series EE and Series I) cannot be sold to another person at all; you redeem them through the federal government, and only after holding them for at least 12 months. Selling bonds before maturity almost always means accepting a price different from face value, and it can trigger tax consequences that don’t apply if you hold to the end.
Selling Marketable Bonds Through a Broker
Treasury notes, Treasury bonds, municipal bonds, and corporate debt all trade on the secondary market. You don’t go back to the issuer. You place a sell order in your brokerage account, and the buyer is another investor or a dealer. The issuer keeps paying interest and principal on schedule, but those payments go to whoever owns the bond after settlement.
There is no minimum holding period and no government approval. Each bond is identified by a nine-character CUSIP number.1CUSIP Global Services. About CGS Identifiers Since May 28, 2024, the standard settlement cycle for most securities is T+1, so cash lands in your account one business day after the trade.2Investor.gov. New T+1 Settlement Cycle – What Investors Need To Know
What Determines the Price You Get
The single most important driver is the relationship between your bond’s fixed coupon and current market interest rates. Rates up, bond prices down. Rates down, bond prices up. If rates have risen since you bought, expect to sell at a discount; if they’ve fallen, you may sell at a premium.
Credit quality matters too for corporate and municipal bonds. A ratings downgrade forces the price down because buyers want a higher yield to take on the added risk. An upgrade pushes it the other way. These moves can be sharp during periods of economic stress.
Accrued Interest
Bond prices are quoted “clean,” meaning without the interest that has built up since the last coupon date. At settlement, the buyer pays the clean price plus accrued interest, which covers you for the portion of the next coupon you earned. Sell two months into a six-month coupon cycle and you collect two months of interest on top of the quoted price. Brokerages calculate this automatically, but it explains why your settlement amount won’t match the price you saw on the screen.
Spreads and Markups
Most bonds trade in dealer markets, not on centralized exchanges. Instead of a visible commission, the dealer builds a markdown into the price they quote you. That bid-ask spread is a real cost even though it doesn’t show up as a line item. For heavily traded Treasuries, the spread is small. For thinly traded corporate or municipal bonds, it can eat into your return meaningfully. If you’re selling a less liquid bond, requesting quotes from more than one dealer is worth the effort.
Redeeming Savings Bonds Early
Series EE and Series I savings bonds are non-marketable. You can’t sell them, only redeem them through TreasuryDirect (for electronic bonds) or by mailing paper bonds with the required form.
Both series carry a minimum 12-month holding period. For Series EE bonds issued on or after February 1, 2003, no redemption is allowed until 12 months after the issue date.3eCFR. 31 CFR Part 351 – Offering of United States Savings Bonds, Series EE The same rule applies to Series I bonds issued on or after that date.4eCFR. 31 CFR Part 359 – Offering of United States Savings Bonds, Series I
Redeem within the first five years and the government keeps three months of interest. Cash out at nine months and you get six months of interest.4eCFR. 31 CFR Part 359 – Offering of United States Savings Bonds, Series I After five years, the penalty is gone and you get the full accrued value.3eCFR. 31 CFR Part 351 – Offering of United States Savings Bonds, Series EE
Partial Redemptions
Electronic bonds in TreasuryDirect can be redeemed in any amount of $25 or more, as long as $25 remains in the bond. Paper bonds have to be cashed in full.5TreasuryDirect. Cash EE or I Savings Bonds Converting paper bonds to electronic form before redeeming gives you the partial option.
How to Redeem
For electronic bonds, log into TreasuryDirect, select the bond, and request redemption; the funds typically reach your linked bank account within two business days. For paper bonds worth $1,000 or less, complete FS Form 1522 with a copy of your government-issued ID.6TreasuryDirect. How to Redeem Paper Savings Bonds (FS Form 1522) Above $1,000, each signer must appear before a notary or authorized certifying officer.7TreasuryDirect. FS Form 1522 – Special Form of Request for Payment Mailed forms can take several weeks.
Disaster Waiver
If you’re in an area with an official federal disaster declaration and your bonds were lost, damaged, or contaminated, Treasury will waive the 12-month rule. For electronic bonds under a year old, call TreasuryDirect at 844-284-2676 or submit FS Form 5512 with “DISASTER” on the envelope; for paper bonds in the same situation, use FS Form 1048 marked the same way.8TreasuryDirect. Cashing Savings Bonds Affected by a Disaster
When the Issuer Sells the Decision for You
Callable bonds give the issuer the right to buy the bond back early at a set price. This is the one scenario where the exit isn’t your call. Issuers typically call when rates fall, because they can refinance at a lower coupon. If your bond gets called, you receive the call price plus accrued interest, and future coupon payments stop.9FINRA. Callable Bonds: Be Aware That Your Issuer May Come Calling
The call price is sometimes slightly above face value, but the real problem is reinvestment: you get your cash back in a low-rate environment and have to redeploy it at a worse yield. Before buying a callable bond, look at the yield-to-call rather than yield-to-maturity. Yield-to-call assumes the issuer redeems at the earliest possible date and shows you the floor for what you can expect to earn.9FINRA. Callable Bonds: Be Aware That Your Issuer May Come Calling
Tax Consequences of an Early Sale
Selling before maturity raises two separate tax questions: how the interest is taxed and whether the sale itself produces a gain or loss.
Interest earned while you held the bond is ordinary income at federal rates. Treasury and savings bond interest is exempt from state and local income tax.10Office of the Law Revision Counsel. 31 U.S. Code 3124 – Exemption From Taxation Municipal bond interest is generally exempt from federal tax and often from state tax in the issuer’s own state. Corporate bond interest has no special exemption.
Capital Gains and Losses
Sell a marketable bond for more than your adjusted cost basis and the difference is a capital gain. Sell for less and it’s a capital loss.11Office of the Law Revision Counsel. 26 U.S. Code 1001 – Determination of Amount of and Recognition of Gain or Loss Net capital losses for the year can offset up to $3,000 of ordinary income ($1,500 if married filing separately), with any excess carried forward.12Office of the Law Revision Counsel. 26 U.S. Code 1211 – Limitation on Capital Losses
One trap catches many sellers. If you bought a bond at a discount on the secondary market, part of your gain when you sell can be recharacterized as ordinary income under the market discount rules, on the theory that the discount was really deferred interest. Separately, bonds originally issued below face value carry original issue discount, which accrues as ordinary income each year whether you sell or not.13Internal Revenue Service. Publication 550 – Investment Income and Expenses Both rules can change what you actually owe, so check whether your bond carries either form of discount before you sell.
Wash Sales
Sell a bond at a loss and buy a substantially identical bond within 30 days before or after the sale, and the IRS disallows the loss. This wash sale rule covers a 61-day window centered on the sale date and applies to bonds just as it does to stocks.14Office of the Law Revision Counsel. 26 U.S. Code 1091 – Loss From Wash Sales of Stock or Securities The loss isn’t lost forever; it gets added to the basis of the replacement bond. But you don’t get to claim it now.
Bonds in IRAs and 401(k)s
Selling a bond inside a retirement account is invisible for tax purposes. There is no capital gain or loss to report. Tax happens when you withdraw money from the account, and for traditional accounts the entire distribution is taxed as ordinary income. Withdraw before age 59½ and a 10% early withdrawal penalty applies on top.15Internal Revenue Service. Retirement Plans FAQs Regarding IRAs – Distributions (Withdrawals) Selling a bond at a loss inside a retirement account gives you no tax benefit; tax-loss harvesting only works in taxable brokerage accounts.
For a taxable sale, your broker sends Form 1099-B reporting the proceeds and Form 1099-INT for interest income.16Internal Revenue Service. About Form 1099-B, Proceeds From Broker and Barter Exchange Transactions Both feed directly into your return.