Treasury bills (T-bills)

Definition

Treasury bills (T-bills) are short-term debt securities issued by the U.S. Department of the Treasury with maturities ranging from a few days to 52 weeks. They are sold at a discount to their face value and do not pay periodic interest.

5 Must Know Facts For Your Next Test

1. T-bills are considered one of the safest investments because they are backed by the full faith and credit of the U.S. government.
2. They are sold through auctions where both competitive and non-competitive bids can be placed.
3. The difference between the purchase price and the face value represents the investor's return, known as a discount yield.
4. T-bills have maturities of 4 weeks, 8 weeks, 13 weeks, 26 weeks, and 52 weeks.
5. They play a key role in monetary policy as they are often used in open market operations.

Review Questions

• What is the primary reason T-bills are considered a safe investment?
• How is the return on investment for T-bills calculated?
• What role do T-bills play in U.S. monetary policy?

Related terms

Treasury Notes: Medium-term debt securities issued by the U.S. Treasury with maturities ranging from 2 to 10 years that pay semi-annual interest.

Treasury Bonds: Long-term debt securities issued by the U.S. Treasury with maturities greater than 10 years that also pay semi-annual interest.

Discount Yield: The return on an investment expressed as a percentage of its discounted price rather than its face value.