Treasury Bill (T-Bill)
A short-term U.S. government security with maturities of 4 to 52 weeks, sold at a discount to face value and paying no periodic interest.
What is Treasury Bill?
A Treasury bill (T-bill) is a short-term debt obligation issued by the U.S. Department of the Treasury with maturities of 4, 8, 13, 17, 26, or 52 weeks. Unlike notes and bonds, T-bills pay no periodic coupon interest; instead, they are issued at a discount to their face value (typically $1,000) and mature at par. The return to the investor is the difference between the discounted purchase price and the face value received at maturity. T-bills are auctioned weekly and are widely regarded as the safest and most liquid short-term instruments available, serving as the closest proxy to a risk-free rate. Money market funds, central banks, and institutional investors hold large quantities of T-bills as cash-equivalent investments.
Example
The U.S. Treasury auctions 4-week T-bills every Monday. In an auction where the stop-out rate is 5.25%, a $1,000 face value T-bill is priced at approximately $1,000 − ($1,000 × 5.25% × 28/360) = $995.92. The investor pays $995.92 and receives $1,000 in 28 days—a gain of $4.08, equivalent to a 5.25% annualized discount rate.