What are Treasury Bills?
• A Treasury Bill, often referred to as a T-Bill, is a type of investment security issued by the United States Treasury through the Bureau of Public Debt. Along with an assortment of fixed-income instruments, a Treasury Bill is used to finance the United States Government’s delivery of public services, defense costs and federal programs. In essence, a T-Bill is a loan, enacted by the United States Federal Government; the Government offers T-bills to the public, at a discount, for funds that are guaranteed to be repaid at a later date.
• All Treasury Bills possess a short maturity date; typically less than one year. When the Bill reaches its maturity date the holder may redeem the bill for full face value plus a small percentage gain. The purchase price of the Treasury Bill serves as a temporary loan to the United States Government, which will return the Treasury Bill, plus a small percentage profit, when it matures.
Denominations and Characteristics of a Treasury Bill:
• The smallest face value for a Treasury Bill is $1,000 US Dollars; a Treasury Bill is sold at a discount, which is determined by the Bureau of Public Debt. Regardless of the discount rate, the United States Treasury Department will pay the full face value of the Treasury Bill when it is redeemed.
• Regular weekly Treasury Bills are issued with maturity dates of roughly 1 month, 3 months, six months or one year. Treasury Bills are sold by single-price auctions held weekly by the Government. Offering amounts for 3 month and 6 month Treasury Bills are announced each Thursday for auction at roughly 11:30 a.m.
• For example, an investor may purchase a 90-day Treasury Bill for $920 and earn an $80 return when the Treasury Bill is redeemed. Dissimilar to a number of investment options, a Treasury Bill does not bear any interest. The Treasury Bill; however, is always sold at a discount and its redemption is guaranteed by the United States government. As a result, the Treasury Bill is regarded as one of the most conservative investment vehicles available.
• When compared with other government (particularly the Treasury) investment securities, the Treasury Bill matures much more quickly; this rapid turnover of investment is not felt with Treasury Notes (maturity date of two to ten years) or Treasury Bonds, which can take 10 to 30 to mature.
Who Purchases Treasury Bills?
• Treasury bills are made available to private investors and institutional investors in the United states. Once purchased from the United States Treasury, a T-bill can be sold or traded before it reaches its maturity date. As a result of this characteristic, a number of investors purchase treasury bills on the secondary market, from banks or other financial institutions who previously purchased the fixed-income investment.