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. 10-Year Treasury Note

    A debt obligation issued by the United States government that ...
  4. Government Security

    A bond (or debt obligation) issued by a government authority, ...
  5. Debt Security

    Any debt instrument that can be bought or sold between two parties ...
  6. Off-The-Run Treasuries

    All Treasury bonds and notes issued before the most recently ...
Related Articles
  1. Retirement

    How is the Social Security trust fund ...

  2.  investing in stocks has handily outperformed investing in bonds, Treasury bills, gold or cash over the long term.
    Investing Basics

    Getting Started In Stocks

  3. To finance the budget deficit, the US government may seek to raise money by taking on debt, often by borrowing from the public.
    Bonds & Fixed Income

    A Look At National Debt And Government ...

  4. Bonds & Fixed Income

    The Basics Of The T-Bill

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center