Glossary
Treasury bill
Short-term US government debt maturing in one year or less, sold at a discount to face value and repaid in full at maturity.
On this page
A Treasury bill (T-bill) is a short-term IOU from the US government that matures in one year or less. Bills pay no coupon. Instead they are sold below their face value and repaid at full face value at maturity; the difference is your interest. Because they are backed by the federal government and mature quickly, T-bills are the market's standard stand-in for a risk-free rate and a core holding of money market funds.
How it works
The Treasury auctions bills every week across a set of maturities ranging from a few weeks to 52 weeks; the 13-week and 26-week bills are among the most closely watched. Investors can buy at auction through a broker or TreasuryDirect, in increments as small as $100, or trade existing bills on the secondary market.
Things to know
Interest on T-bills is subject to federal income tax but exempt from state and local income taxes, a real advantage in high-tax states. Price risk is small: even a sharp rate rise barely moves the value of a bill that matures in weeks. The main risk is reinvestment: when a bill matures, the next one may pay much less if rates have fallen. Bill yields track the Federal Reserve's policy rate closely, so they rise and fall with the Fed's decisions.