Loading the player...

What is a 'Treasury Bill - T-Bill'

A Treasury bill (T-Bill) is a short-term debt obligation backed by the U.S. government with a maturity of less than one year, sold in denominations of $1,000 up to a maximum purchase of $5 million. T-bills have various maturities and are issued at a discount from par. When an investor purchases a T-Bill, the U.S. government writes an IOU; investors do not receive regular payments as with a coupon bond, but a T-Bill pays an interest rate.

BREAKING DOWN 'Treasury Bill - T-Bill'

T-Bills are attractive to investors because they offer a very low-risk way to earn a guaranteed return on invested money. They benefit the U.S. government because the government uses the money raised from selling T-bills to fund various public projects, such as the construction of schools and highways. T-bills can have maturities of just a few days up to the maximum of 52-weeks, but common maturities are one month, three months or six months. The longer the maturity date, the higher the interest rate that the T-Bill will pay to the investor.

Purchase Process

T-bills can be purchased at auctions held by the government, or investors can purchase T-bills on the secondary market that have been previously issued. T-Bills purchased at auctions are priced through a competitive bidding process, at a discount from the par value. When investors redeem their T-Bills at maturity, they are paid the par value. The difference between the purchase price and par value is interest. For example, an investor purchases a par value $1,000 T-Bill for $950. When this T-Bill matures, the investor is paid $1,000, thereby making $50 on the investment.

Benefits to Investors

There are a number of advantages that T-bills offer to investors. They are considered low-risk investments because they are backed by the credit of the U.S. government. With a minimum investment requirement of just $1,000, and a maximum investment of $5 million, they are accessible by a wide range of investors. In general, interest income from Treasury bonds is exempt from state and local income taxes. They are, however, subject to federal income taxes, and some components of the return may be taxable at sale/maturity. The main downfall of T-bills is that they offer lower returns than many other investments, but these lower returns are due to their low risk. Investments that offer higher returns generally come with more risk.

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

RELATED TERMS
  1. Coupon Pass

    The purchase of treasury notes or bonds from dealers, by the ...
  2. Variable Coupon Renewable Note ...

    A renewable fixed income security with variable coupon rates ...
  3. Broad Liquidity

    A category of the money supply which includes: all funds in M3, ...
  4. Federally Guaranteed Obligations

    A federally guaranteed obligation is debt that is backed by the ...
  5. Market Neutral Fund

    An aggressive type of mutual fund that aims to deliver superior ...
  6. Pull To Par

    The movement of a bond's price toward its face value as it approaches ...
Related Articles
  1. Investing

    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 ...
  2. Investing

    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.
  3. Investing

    What to Make of a Zero Percent Yield

    Interest rates hit a new bottom earlier this month when three-month Treasury bills (T-bills) were sold at a zero percent yield for the first time ever.
  4. Investing

    Introduction to Treasury Securities

    Purchasing bonds that are backed by the full faith and credit of the U.S. government can provide steady guaranteed income and peace of mind. Knowing the characteristics of each type of treasury ...
  5. Investing

    Investing Basics: Flight To Quality

    At times of market stress, investors flee from risky assets to investments the safest ones available.
  6. Investing

    The Differences Between Bills, Notes And Bonds

    Treasury bills, notes and bonds are all marketable securities sold by the U.S. government to pay off debts and to raise cash.
  7. Investing

    Getting To Know The Money Market

    If you need liquidity and safety on a sum of money, don't forgo potential interest by keeping the funds as cash.
RELATED FAQS
  1. What factors influence the price of treasury bills?

    Take a deeper look at some of the factors that influence the prices of Treasury bills, such as monetary policy set by the ... Read Answer >>
  2. 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. Read Answer >>
  3. How are treasury bill interest rates determined?

    Find out why interest rates for U.S. Treasury bills are determined at auction and how so-called "competitive" bidders impact ... Read Answer >>
  4. How do treasury bill prices affect other investments?

    Find out how the price and yield of Treasury bills can impact the level of risk investors are willing to accept in their ... Read Answer >>
  5. I have a short period of time (1 year or less) during which I will have money to ...

    If you only have a short period of time in which to invest your money (i.e. less than one year), there are several investment ... Read Answer >>
  6. When are treasury bills best to use in a portfolio?

    Understand the role that U.S. Treasury bills can play in an investment portfolio and why they represent one of the most liquid ... Read Answer >>
Hot Definitions
  1. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  2. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  3. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  4. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  5. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  6. Four Percent Rule

    A rule of thumb used to determine the amount of funds to withdraw from a retirement account each year. The four percent rule ...
Trading Center