T-BILL
Back to GlossaryDefinition
A short-term U.S. government debt obligation backed by the Treasury Department with a maturity of one year or less.
Summary
A T-Bill (Treasury Bill) is a short-term debt security issued by the U.S. government with a maturity of one year or less. T-Bills are sold at a discount to their face value and don't pay periodic interest. Instead, investors earn money when the bill matures and they receive the full face value. For example, you might buy a $1,000 T-Bill for $980 and receive $1,000 when it matures, earning $20 in profit. T-Bills are considered one of the safest investments because they're backed by the full faith and credit of the U.S. government.
Usage Context
Understanding T-Bills is crucial when studying government financing, money markets, risk-free investments, yield curve construction, and short-term investment strategies. They serve as a foundation for understanding more complex fixed-income securities.
Common Confusions
- Thinking T-Bills pay regular interest payments like bonds
- Confusing T-Bills with T-Notes and T-Bonds (which have longer maturities)
- Not understanding that T-Bills are sold at a discount
- Believing T-Bills are completely without any risk (they have inflation and opportunity cost risks)
- Mixing up the purchase price with the face value
