Treasury Bills (T-Bills)
Treasury bills (T-Bills) are short-term U.S. government debt obligations.
What Are Treasury Bills (T-Bills)?
Treasury bills (T-Bills) are essentially short-term U.S. government debt obligations that are backed by the Treasury Department with a maturity in a year or less.
Treasury bills are typically sold in denominations of $1,000, and some can even reach a maximum denomination of $5 million when in non-competitive bids.
As such, these securities are widely regarded as a low-risk as well as a secure investment.
The U.S. government issues treasury bills to fund different public projects, for example, the construction of highways, and when an investor purchases a treasury bill, the U.S. government is writing an “I owe you” letter to the investors. This means that treasury bills are considered safe as well as conservative investments since the U.S. government backs them.
Treasury bills are held until their maturity date; however, some holders might want to cash out before the maturity and realize the short-term interest gains through reselling the investment to the secondary market.
Discussing treasury bill maturities, they can have maturities of just a few days up to a maximum of 52 weeks. Keep in mind that the longer a maturity date is, the higher the interest rate that the treasury bill will pay to the investor.
Treasury bills are issued at a discount from the face value of the bill, and this means that the purchase is less than the face value of the bill itself.
Over time, when the treasury bill ends up maturing, the investor is paid the face value of the bill they bought. If the face value amount is greater than the purchase price, the difference is in the interest earned for the investor. Keep in mind that treasury bills do not pay regular interest payments as with a coupon bond, for example; however, a treasury bill does have an interest which is reflected on the amount it pays when it ends up maturing.