Treasury Bill (T-bill)
A Treasury bill is a short-term government debt security, usually maturing within a year, that pays no coupon. It is sold below its face value and repaid at face value, and the difference is the investor's return.
Also called: T-bill · treasury bills · T-bills · government bill
The US Treasury sells bills with terms of 4, 6, 8, 13, 17, 26 and 52 weeks, plus cash management bills for shorter periods. They are sold at auction at a discount to face value, or occasionally at par, and the holder receives the full face amount at maturity. Other governments issue similar instruments; the UK Debt Management Office sells sterling Treasury bills, for example.
Bills sit at the base of the short-term money markets. Because they are short, liquid and backed by the government that issues the currency, they are widely treated as the closest thing to cash that pays interest. Money market funds hold them, banks use them as collateral in repo, and central banks buy and sell them in their operations. Their yields track the policy rate closely, so they form the short end of the yield curve.
Bills matter directly to payments and stablecoin businesses. Large dollar stablecoin issuers hold much of their reserves in short US Treasury bills, so their income rises and falls with bill yields. Payment institutions and money transmitters investing client or customer funds may be limited to high-quality short assets, and short government bills are often among those permitted, although the exact list is set by each regulator and, in the US, by state permissible investment rules.
A bill's price moves only slightly before maturity, because there is little time for rates to change its value, but it does move. A bill trades near par, not at par, until the day it is repaid.
In practice
A Treasury bill is free of default risk only in the issuer's own currency and only to the extent the issuer is creditworthy. A bill sold before maturity can realise a small loss if rates have risen.
Example
An investor buys a 26-week bill with a face value of US$1,000 for US$980. At maturity the Treasury pays US$1,000. The US$20 gain is about 2.0 percent over six months, or roughly 4.1 percent annualised.
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Commonly confused with
| Term | How it differs |
|---|---|
| Treasury bond | A Treasury bond or note has a longer maturity, from two to thirty years in the US, and pays interest coupons. A bill is short, pays no coupon and earns its return from the discount. |
See also
- Money Market FundA money market fund (MMF) is an investment fund that holds short-term, high-quality debt such as Treasury bills, repo and commercial paper, and aims to keep a stable value while offering daily access. Investors use it like a deposit, but it is not one.
- Repurchase AgreementA repurchase agreement, or repo, is a short-term loan structured as a sale: one party sells securities for cash and agrees to buy them back later at a slightly higher price. The securities are the collateral and the price difference is the interest.
- Yield CurveThe yield curve plots the interest rates on bonds of the same credit quality across different maturities, usually government bonds from one month to thirty years. Its shape shows what markets expect for interest rates, inflation and growth.
- StablecoinA stablecoin is a crypto-asset designed to hold a steady value against a reference, almost always a fiat currency such as the US dollar. How that steadiness is supported differs sharply from one issuer to the next, and so does what a holder can actually redeem.
- Permissible InvestmentsPermissible investments are the categories of asset a licensed US money transmitter may count against its outstanding money transmission obligations. Under the model law states have been adopting, the licensee must hold permissible investments worth at least the whole of what it owes customers, and the eligible list runs wider than cash and government securities.
- Tally StickA tally stick was a notched wooden stick, split lengthways into two matching halves, used by the English Exchequer from the twelfth century to 1826 to record payments and debts. Only the original halves fitted together, which made forgery difficult.