Treasury Bills T-Bills What They Are and What You Need to Know to Invest

Treasury Bills (T-Bills): What You Need to Know to Invest

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What Is a Treasury Bill (T-Bill)?

A Treasury bill (T-Bill) is a short-term U.S. government debt obligation with a maturity of one year or less. They are backed by the Treasury Department and usually sold in denominations of $1,000, although some can reach a maximum denomination of $5 million.

Understanding Treasury Bills (T-Bills)

The U.S. government issues T-bills to fund public projects. They are considered safe and conservative investments due to the backing of the U.S. government. T-bills are generally held until the maturity date, but some investors may choose to sell them in the secondary market for short-term interest gains.

T-Bill Maturities

T-bills can have maturities of just a few days, but the Treasury lists them at four, eight, 13, 17, 26, and 52 weeks. The rates of T-bills depend on interest rate expectations. Remember, T-bills are short-term, so the mnemonic "bill needs to be paid soon" can help differentiate them from T-notes and T-bonds.

T-Bill Redemptions and Interest Earned

T-bills are issued at a discount from their face value. When they mature, investors are paid the face value of the bill. The difference between the face value and the purchase price represents the interest earned. Keep in mind that T-bills do not pay regular interest payments like coupon bonds.

T-Bill Tax Considerations

Interest income from T-bills is exempt from state and local income taxes but subject to federal income tax. For more tax information, investors can visit the research division of the TreasuryDirect website.

Purchasing T-Bills

There are two ways to buy T-bills: directly from the government through TreasuryDirect or on the secondary market through a broker. TreasuryDirect auctions new issues of T-bills, while brokers offer access to a wider range of T-bills.

Treasury Bonds, Notes, and Bills

Treasury bills, notes, and bonds are different types of debt issued by the U.S. Treasury. T-bills have the shortest maturity, while T-notes and T-bonds have longer maturities of two to 10 years and 30 years, respectively.

Pros and Cons of T-Bills

T-Bills are considered safe investments due to their U.S. government guarantee. However, they offer lower returns compared to other debt instruments. T-bills do not pay periodic interest, and their interest rates may become less attractive in a rising-rate environment. Consider your risk tolerance, return objectives, and investment time horizon when deciding if T-bills are a good fit for you.

What Influences T-Bill Prices?

Several factors influence T-bill prices, including macroeconomic conditions, monetary policy, maturity dates, market risk, and inflation. T-bills with longer maturities may have higher returns when interest rates are rising, while shorter-term T-bills may be discounted less. The Federal Reserve’s actions and inflation rate also impact T-bill prices.

Example of a Treasury Bill Purchase

If you’re considering T-bills as an investment, assess your situation, goals, risk tolerance, return objectives, and investment time horizon to determine if they are suitable for you.

What Are the Maturity Terms for Treasury Bills?

U.S. Treasury bills are issued with maturities ranging from four to 52 weeks.

What Kind of Interest Payments Will I Receive If I Own a Treasury Bill?

T-bills do not pay regular interest payments. Instead, you receive the full face value of the bill when it matures. The difference between the purchase price and the face value represents your accrued interest.

How Can I Buy a Treasury Bill?

You can buy T-bills directly from the government through the TreasuryDirect website or on the secondary market through a broker.

Where Is My Paper Hard Copy of the T-Bill I Bought?

T-bills and other government bonds are only available digitally through TreasuryDirect or your broker. Paper hard copies are no longer issued.

The Bottom Line

Treasury Bills are considered low-risk investments backed by the U.S. government. They offer relatively low returns but are a safe option for preserving liquidity and principal. Consider your investment goals and risk tolerance when deciding if T-bills are right for you.