There is no exemption for gains from sales of US Treasury bonds (either individual bonds sold on the secondary market or the sale of shares in a mutual fund or EFT that holds these bonds). Those gains are capital gains, based on the change in value of the bond or the shares in the fund you sold from when you originally purchased the bond/shares. You pay capital gains tax on that, as you would on the sale of any asset (of course it's also possible to have a capital loss, which would reduce your taxes). Capital gains and losses are reported on a 1099-B. There is no California adjustment for capital gains on the sale of such bonds/shares (and I believe California treats capital gains like ordinary income--which differs from how the federal government treats them).
What I'm talking about in this thread are the dividends/interest that one earns while holding US Treasury bonds (or shares in a fund that holds these bonds). That is dividends/interest that is paid out to you over the course of the year, while you continue to hold the bonds/shares and has nothing to do with the sale of those bonds/shares and the gains/losses that may occur upon sale. This type of dividend/interest is reported either on a 1099-DIV (mainly for funds, I believe) or a 1099-INT (if, I believe, you are holding actual individual bonds). You get an adjustment for that on your California taxes.
It is common to get both a 1099-DIV and 1099-B from a financial institution (or a consolidated form that includes both) for the same fund. For example, if you hold shares in a mutual fund that produces dividends, but you sell some of those shares over the course of the year, then you will get a 1099-DIV reporting your dividend income from the fund during the year and a 1099-B reporting your capital gain/loss from the shares you sold. So depending on the activity with the mutual fund or individual bonds over the course of the year, you could get one or the other or both of those forms.
