Treasury Bill - T-Bill

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. 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.

BREAKING DOWN '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

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. Federally Guaranteed Obligations

    A federally guaranteed obligation is debt that is backed by the ...
  4. Broad Liquidity

    A category of the money supply which includes: all funds in M3, ...
  5. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  6. Pre-Refunding Bond

    A type of bond issued to fund another callable bond, where the ...
Related Articles
  1. Retirement

    Money Market: Treasury Bills (T-Bills)

    Treasury Bills (T-bills) are the most marketable money market security. Their popularity is mainly due to their simplicity. Essentially, T-bills are a way for the U.S. government to raise money ...
  2. Markets

    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 ...
  3. Markets

    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.
  4. Markets

    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.
  5. Managing Wealth

    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.
  6. Markets

    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 ...
  7. Markets

    Bond Basics: Different Types Of Bonds

    Government Bonds In general, fixed-income securities are classified according to the length of time before maturity. These are the three main categories: Bills - debt securities maturing in less ...
  8. Markets

    How To Read A T-Bill Quote

    If you want buy and sell US Treasury bills, you need to learn to read the quotes.
  9. Investing

    Investing Basics: Flight To Quality

    At times of market stress, investors flee from risky assets to investments the safest ones available.
  10. ETFs & Mutual Funds

    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. 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 >>
  2. 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 >>
  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. 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 >>
  5. 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 >>
  6. What's the difference between bills, notes and bonds?

    Treasury bills (T-Bills), notes and bonds are marketable securities the U.S. government sells in order to pay off maturing ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center