Treasury Bill
Definition
A short-term government debt obligation backed by the Treasury Department with a maturity of one year or less.
Deep Dive
A Treasury Bill, commonly known as a T-bill, is a short-term debt obligation issued by the U.S. government through the Treasury Department, characterized by a maturity of one year or less, typically 4, 8, 13, 17, 26, or 52 weeks. T-bills are considered one of the safest investments in the world because they are backed by the full faith and credit of the U.S. government, virtually eliminating default risk. They are unique among government securities as "zero-coupon" instruments, meaning they do not pay periodic interest; instead, they are sold at a discount to their face (par) value, and the investor earns the difference between the purchase price and the face value received at maturity.
Examples & Use Cases
- 1An investor purchases a 26-week Treasury bill for $9,800, knowing they will receive $10,000 at maturity, earning $200 in interest.
- 2A corporate treasurer invests excess company cash in T-bills for 13 weeks to ensure liquidity while earning a small, risk-free return.
- 3The Federal Reserve monitors the yield on 3-month Treasury bills as an indicator of short-term interest rate expectations in the financial markets.