Money Market: Treasury Bills (T-Bills)
  1. Money Market: Introduction
  2. Money Market: What Is It?
  3. Money Market: Treasury Bills (T-Bills)
  4. Money Market: Certificate Of Deposit (CD)
  5. Money Market: Commercial Paper
  6. Money Market: Banker's Acceptance
  7. Money Market: Eurodollars
  8. Money Market: Repos
  9. Money Market: Conclusion

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 from the public. In this tutorial, we are referring to T-bills issued by the U.S. government, but many other governments issue T-bills in a similar fashion.

T-bills are short-term securities that mature in one year or less from their issue date. They are issued with three-month, six-month and one-year maturities. T-bills are purchased for a price that is less than their par (face) value; when they mature, the government pays the holder the full par value. Effectively, your interest is the difference between the purchase price of the security and what you get at maturity. For example, if you bought a 90-day T-bill at $9,800 and held it until maturity, you would earn $200 on your investment. This differs from coupon bonds, which pay interest semi-annually.

Treasury bills (as well as notes and bonds) are issued through a competitive bidding process at auctions. If you want to buy a T-bill, you submit a bid that is prepared either non-competitively or competitively. In non-competitive bidding, you'll receive the full amount of the security you want at the return determined at the auction. With competitive bidding, you have to specify the return that you would like to receive. If the return you specify is too high, you might not receive any securities, or just a portion of what you bid for. (More information on auctions is available at the TreasuryDirect website.)

The biggest reasons that T-Bills are so popular is that they are one of the few money market instruments that are affordable to the individual investors. T-bills are usually issued in denominations of $1,000, $5,000, $10,000, $25,000, $50,000, $100,000 and $1 million. Other positives are that T-bills (and all Treasuries) are considered to be the safest investments in the world because the U.S. government backs them. In fact, they are considered risk-free. Furthermore, they are exempt from state and local taxes. (For more on this, see Why do commercial bills have higher yields than T-bills?)

The only downside to T-bills is that you won't get a great return because Treasuries are exceptionally safe. Corporate bonds, certificates of deposit and money market funds will often give higher rates of interest. What's more, you might not get back all of your investment if you cash out before the maturity date.

Money Market: Certificate Of Deposit (CD)

  1. Money Market: Introduction
  2. Money Market: What Is It?
  3. Money Market: Treasury Bills (T-Bills)
  4. Money Market: Certificate Of Deposit (CD)
  5. Money Market: Commercial Paper
  6. Money Market: Banker's Acceptance
  7. Money Market: Eurodollars
  8. Money Market: Repos
  9. Money Market: Conclusion
RELATED TERMS
  1. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with ...
  2. Coupon Pass

    The purchase of treasury notes or bonds from dealers, by the ...
  3. Broad Liquidity

    A category of the money supply which includes: all funds in M3, ...
  4. Variable Coupon Renewable Note - VCR

    A renewable fixed income security with variable coupon rates ...
  5. Treasury Note

    A marketable U.S. government debt security with a fixed interest ...
  6. Risk-Free Asset

    An asset which has a certain future return. Treasuries (especially ...
RELATED FAQS
  1. How do I buy treasury bills?

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  2. What factors influence the price of treasury bills?

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  3. How are treasury bill interest rates determined?

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  4. How do treasury bill prices affect other investments?

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  5. I have a short period of time (1 year or less) during which I will have money to ...

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  6. When are treasury bills best to use in a portfolio?

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