Treasury Bill - T-Bill

AAA

DEFINITION of 'Treasury Bill - T-Bill'

A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks) or six months (26 weeks).

T-bills are issued through a competitive bidding process at a discount from par, which means that rather than paying fixed interest payments like conventional bonds, the appreciation of the bond provides the return to the holder.

INVESTOPEDIA EXPLAINS 'Treasury Bill - T-Bill'

For example, let's say you buy a 13-week T-bill priced at $9,800. Essentially, the U.S. government (and its nearly bulletproof credit rating) writes you an IOU for $10,000 that it agrees to pay back in three months. You will not receive regular payments as you would with a coupon bond, for example. Instead, the appreciation - and, therefore, the value to you - comes from the difference between the discounted value you originally paid and the amount you receive back ($10,000). In this case, the T-bill pays a 2.04% interest rate ($200/$9,800 = 2.04%) over a three-month period.

For more on this topic, check out the Money Market: Treasury Bills Tutorial

VIDEO

RELATED TERMS
  1. Bill Announcement

    An announcement published by the U.S. Treasury regarding the ...
  2. Bill Auction

    A public auction for Treasury bills that is held weekly by the ...
  3. Pre-Refunding Bond

    A type of bond issued to fund another callable bond, where the ...
  4. Debt Security

    Any debt instrument that can be bought or sold between two parties ...
  5. Government Security

    A bond (or debt obligation) issued by a government authority, ...
  6. 10-Year Treasury Note

    A debt obligation issued by the United States government that ...
Related Articles
  1. Bonds & Fixed Income

    How do I buy treasury bills?

    Discover how Treasury Bills (T-bills) are a safe-bet investment for short-term returns. The percentages on the returns vary.
  2. Bonds & Fixed Income

    How is a debenture stock different from a regular debenture?

    Learn to differentiate between standard debentures and debenture stocks, which are equities that act more like preferred stocks than debt issues.
  3. Investing Basics

    How do you the calculate Sharpe ratio in Excel?

    Learn how to use Microsoft Excel to calculate the Sharpe ratio, an investing tool useful for assessing the relationship between risk and return for an asset.
  4. Retirement

    How is the Social Security trust fund invested?

    Read about how the Social Security trust fund is set up, paid into, borrowed from and invested by the U.S. government and what it means for taxpayers.
  5. Investing Basics

    Getting Started In Stocks

    We'll provide a step-by-step introduction on how to invest - and succeed - in this market.
  6. Bonds & Fixed Income

    A Look At National Debt And Government Bonds

    Learn the functions of the U.S. Treasury, and find out how and why it issues debt.
  7. Bonds & Fixed Income

    The Basics Of The T-Bill

    The U.S. government has two primary methods of raising capital. One is by taxing individuals, businesses, trusts and estates; and the other is by issuing fixed-income securities that are backed ...
  8. Bonds & Fixed Income

    The History Of The T-Bill Auction

    Learn how the U.S. found the perfect solution to its debt problems and ended up creating one of the largest markets in the world.
  9. Active Trading

    Guard Your Portfolio With Defensive Stocks

    Find out how these securities can protect you from a market bust.
  10. Personal Finance

    Get A Short-Term Advantage In The Money Market

    This investment vehicle is often the perfect stop-gap measure for growing your money.

You May Also Like

Hot Definitions
  1. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  2. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  3. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  4. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  5. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
  6. Bank Guarantee

    A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor ...
Trading Center