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Treasury bills

Category — Sovereign Bonds
By Konstantin Vasilev Member of the Board of Directors of Cbonds, Ph.D. in Economics
Updated September 11, 2023

What is a treasury bill (T-Bill)?

A Treasury bill, often referred to as a T-Bill, represents a short-term debt commitment of the U.S. government, endorsed by the Treasury Department, and possesses a maturity period of one year or less. These T-Bills are commonly issued in units of $1,000, although in non-competitive bids, there exists a possibility for some to have a higher maximum denomination, even reaching up to $5 million. Due to their inherent characteristics, these financial instruments are widely acknowledged for their minimal risk and stable nature.

The process of selling T-Bills involves the Treasury Department conducting auctions that encompass both competitive and non-competitive bidding methodologies. In non-competitive bids, also recognized as non-competitive tenders, the offered price is determined based on the average valuation derived from all the competitive bids submitted.

Typically, Treasuries are issued in denominations of $1,000. Treasury bill yields are often lower yields compared to other fixed-income securities, as their minimal risk positions them as one of the most secure options for investment.

Treasury bills

What is the purpose of issuing Treasury bills?

The U.S. federal government issues T-bills to finance diverse public endeavors like building schools and highways. As an investor buys a T-bill, they essentially receive an IOU from the U.S. government. This makes T-bills a secure and cautious investment due to government backing.

Typically, T-bills are retained until they mature. Yet, certain holders might choose to liquidate prior to maturity, capturing immediate interest profits by selling the investment in the secondary market.

Comprehending Treasury Bills

  • T-Bill Maturity Span. T-bills showcase maturities that can extend from merely a few days to various durations. The range of maturities offered by the Treasury encompasses four, eight, 13, 17, 26, and 52 weeks. The outlook for interest rates notably impacts the choice of maturity. In a climate of anticipated ongoing rate elevation, longer maturity periods yield higher returns than their shorter counterparts. Conversely, extended maturity periods might feature lower interest rates if interest rates are projected to decrease.

  • T-Bill Redemption and Accrued Interest. T-bills are initially issued at a discounted rate relative to their par value, also known as the face value. This means that the price at which they are purchased is lower than their face value. To illustrate, an investor acquiring a $1,000 T-bill might actually pay $950.

    Upon maturation, the investor receives the full par value, reflecting the face value of the T-bill they procured. If the face value surpasses the initial purchase price, the disparity signifies the interest earned by the investor. It’s important to note that T-bills do not yield periodic interest payments akin to coupon bonds. However, the interest is indeed encompassed within the maturity payout.

  • Tax Implications of T-Bills. Interest income stemming from T-bills benefits from state and local income tax exemption. However, it remains subject to federal income tax. Investors seeking further tax-related insights can explore the research division of the TreasuryDirect website for additional information.

Treasury bill purchase

When it comes to obtaining T-Bills, there exist two avenues: direct acquisition from the government or involvement in the secondary market via a broker.

Purchasing T-Bills via TreasuryDirect Fresh issuances of T-Bills can be secured through auctions conducted by the government, facilitated on the TreasuryDirect platform. These auctions employ a bidding process that engages diverse bidders, spanning individual investors, hedge funds, banks, and primary dealers. The resulting buyers could subsequently choose to resell the bills to other interested parties within the secondary market.

The competitive bid approach establishes the price at a discount from the T-bill’s nominal value. This method empowers you to stipulate the yield you aim to attain from the T-bill. On the other hand, noncompetitive bid auctions enable investors to submit bids for acquiring a predetermined dollar sum of bills. The yield received by investors aligns with the average auction price resulting from all bids.

Procuring T-Bills within the Secondary Market Alternatively, you can purchase Treasury bills through a licensed broker or a bank. Following the transaction’s completion, the acquired T-bill stands as a testament from the government, affirming that you are entitled to the invested sum in accordance with the bid’s terms.

Advantages and disadvantages of Treasury bills

Treasury Bills stand out as one of the most secure investment options available to investors, offering a shield against default risk. Nevertheless, this safety can sometimes carry implications. T-bills provide a fixed interest rate, ensuring a steady income stream. However, in a scenario of ascending interest rates, the attractiveness of existing T-bills diminishes as their rates become less appealing compared to prevailing market conditions. This introduces interest rate risk, signifying the potential for present bondholders to miss out on better rates in the future.

While T-bills have zero default risk, their returns generally trail behind those of corporate bonds and select certificates of deposit. Due to the absence of regular interest payments, Treasury bills are sold at a discounted price relative to their face value. The profit materializes upon maturity, representing the disparity between the purchase price and the face value.

Should T-bills be sold prematurely, gains or losses could arise contingent on the prevailing bond prices at the point of sale. In simpler terms, if sold before maturity, the sale price might dip below the initial purchase cost.

Summary of pros and cons of T-Bills:


  • Zero default risk thanks to the U.S. government’s guarantee.

  • T-bills demand a low minimum investment of $100.

  • Though federal income taxes apply, interest earnings evade state and local income taxes.

  • T-bills can be effortlessly bought and sold on the secondary bond market.


  • T-bills present comparatively modest returns in contrast to alternative debt instruments.

  • T-bills lack interest payments leading up to maturity.

  • For investors seeking consistent income, T-bills might impede cash flow.

  • The presence of interest rate risk implies that T-bill rates could lose allure in an environment of rising rates.

Factors Affecting T-Bill Prices

The fluctuations in T-bill prices mirror those observed in other debt securities. Numerous elements can sway prices, encompassing macroeconomic conditions, monetary policy adjustments, and the broader supply and demand dynamics for Treasury securities.

Maturity Dates

Maturity dates wield significant influence over T-bill prices. Longer-maturity T-bills typically offer superior returns compared to shorter-maturity counterparts during periods of rising interest rates. In essence, as rates ascend, the discounting of short-term T-bills might be milder than that of longer-term T-bills. Conversely, during rate declines, shorter-term T-bills could experience more pronounced discounts.

Market Risk

Investors’ risk tolerance plays a pivotal role in shaping prices. Notably, T-bill prices tend to dip when alternative investments, like equities, appear less perilous, especially in times of economic expansion. Conversely, T-bills often attract investors seeking security during recessions, boosting demand for these havens.

The Federal Reserve

The monetary policy orchestrated by the Federal Reserve, especially via the federal funds target rate range, significantly impacts T-bill prices. This rate pertains to the interest charged by banks when lending reserve balances on an overnight basis.

The Federal Reserve’s manipulation of this rate, whether upwards or downwards, orchestrates the contraction or expansion of the money supply. This, in turn, affects lending, inflation, purchasing power, and, ultimately, employment. Variations in the federal funds rate exert an analogous influence on short-term rates, encompassing those tied to T-bills. When the Fed heightens rates, money tends to flow away from Treasuries towards higher-yielding alternatives. Consequently, the fixed T-bill rate becomes comparatively less attractive, prompting investors to sell T-bills. Conversely, Fed-rate reductions lead to heightened T-bill prices as investors flock to these higher-yield options.

The Federal Reserve also assumes a substantial role as a purchaser of government debt securities. These transactions amplify or diminish the money supply. When the Fed sells its holdings, money is absorbed by the Federal Reserve. In contrast, buying securities directs money outward to investors, who can then funnel it into banks, expenditures, or alternative securities. This augmented money supply aids the Fed in managing inflation. T-bill prices experience elevation during periods of expansionary monetary policy marked by the Fed’s Treasury purchases. Conversely, T-bill prices dwindle when the Fed divests from its debt securities.


Treasuries are also pitted against inflation, the gauge of price escalation in the economy. Despite T-bills being highly liquid and secure debt securities, fewer investors tend to gravitate toward them when the inflation rate surpasses the T-bill return. For instance, if an investor secures a T-bill with a 2% yield during a period when inflation is at 3%, the investor essentially incurs a real-term loss on the investment. Consequently, T-bill prices typically decline amid inflationary phases as investors offload them in favor of higher-yield alternatives.

Treasury Inflation-Protected Securities (TIPS) are a type of U.S. government bond designed to safeguard investors against inflation. These securities are issued by the U.S. Department of the Treasury and offer a unique feature: their principal value adjusts with changes in the Consumer Price Index (CPI), a widely used measure of inflation. This means that as inflation rises, the principal value of TIPS increases, which in turn results in higher interest payments.

Treasury Bonds vs. Treasury Notes vs. Treasury Bills

Within the realm of debt offerings from the U.S. Department of the Treasury, Treasury bills constitute just one of the various categories. Alongside T-bills, Treasury bonds and Treasury notes also play distinct roles, each denoting diverse debt instruments. All three entail fixed-term debt obligations that span specific durations.

The principal distinction among these debt types lies in their respective maturity timelines. Treasury bills stand as short-term commitments, reaching maturity over periods spanning from a few days to 52 weeks. In contrast, Treasury notes manifest as medium-term securities, with maturities extending from two to 10 years. At the far end of the spectrum, Treasury bonds boast the most protracted lifespan, culminating in maturity after a span of 30 years.

Example of a treasury bill acquisition

Let’s delve into a real-world scenario to understand the mechanics of a Treasury Bill (T-bill) acquisition. On May 13, 2023, the Treasury unveiled its most recent 52-week T-bill, with the preceding issuance occurring in April. During this issuance, the T-bill was sold at a rate of $95.419667 per $100 face value.

Suppose you opted to invest in this 52-week T-bill on that day, considering a face value of $1,000. Your initial investment would amount to $954.19667, calculated by multiplying the purchase price per $100 face value ($95.419667) by the number of times $100 fits into $1,000 (which is 10 times).

Over the course of the following 52 weeks, your T-bill investment would mature. Upon maturity, you would receive the face value of $1,000, thus concluding the investment period. In this scenario, your net gain would be $45.80. This gain stems from the difference between the face value ($1,000) and your initial investment ($954.19667).

The $45.80 surplus represents the interest accrued over the 52-week duration of the T-bill’s maturity. This calculation reflects the essence of T-bill investments, where the discrepancy between the discounted purchase price and the face value contributes to the yield gained upon maturity.

It’s important to note that while T-bills are relatively secure investments backed by the U.S. government, their returns are typically lower than those of riskier options. However, their stability and consistent performance make them appealing to investors seeking reliable short-term gains.


  • Is a Treasury bill a good investment?

  • What are Treasury bills paying now?

  • How does a Treasury bill work?

  • Can I buy a T-bill at a bank?

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