Question 1

What is a Treasury bill?

Accepted Answer

A Treasury bill, or T-bill, is a short-dated loan you make to the U.S. federal government. It matures in a year or less, the standard tenors are 4, 8, 13, 17, 26, and 52 weeks, and there is no coupon. You buy it at a discount to its face value, and at maturity you collect the full face value. The difference is your interest. A $9,900 purchase that pays $10,000 ninety-one days later is a 4% range yield on a bond-equivalent basis, give or take whatever the auction prints that morning. The whole product is a glorified IOU from the Treasury, backed by the same printing press that prints every other dollar in your wallet, which is why it is treated as the closest thing to a risk-free asset that exists.

Question 2

How do T-bills work?

Accepted Answer

The Treasury auctions bills every week. You bid, the auction clears at a single discount rate, and you wire the discounted price for whatever face amount you bought. From that day forward, nothing happens. There are no coupon payments to track, no reinvestment decisions, no prepayment risk. On the maturity date, the Treasury wires you the face value and the trade is over. If you bought a 13-week bill on Monday for $9,850 with a $10,000 face, on the Monday thirteen weeks later you get $10,000. That $150 is your entire return. You can buy them directly through TreasuryDirect, through any brokerage, or own them indirectly via a money market fund that is itself buying them by the billion.

Question 3

Are T-bills safe?

Accepted Answer

About as safe as anything denominated in dollars can be. The U.S. Treasury has never failed to pay back a maturing bill, and the practical reason is that it does not have to: it issues the dollars the bill is denominated in. The risks are not credit risks. They are reinvestment risk, the chance that when your bill matures, the next one pays a lower rate, and inflation risk, the chance that the dollars you get back buy less than the dollars you put in. Both of those risks exist for cash too. They just feel less dramatic. T-bills also carry no equity-style mark-to-market drama if you hold to maturity. The price between issue and maturity does move with rates, but you do not care, because you are getting exactly $10,000 on a known date.

Question 4

How to buy T-bills?

Accepted Answer

Two paths. The direct one is TreasuryDirect.gov, the government's own portal, where you set up an account, link a bank account, and submit non-competitive bids in the weekly auction. Non-competitive means you accept whatever rate the auction clears at, which is what almost every retail buyer does. The other path is your brokerage. Fidelity, Schwab, Vanguard, and the rest let you buy newly issued bills at auction or trade existing bills in the secondary market, often without commission. Most people use the brokerage path because the bills land in the same account as their stocks and IRAs, with the same tax forms at year-end. The auction prices clear within a basis point of each other regardless of how you got in.

Question 5

What is the difference between T-bills, T-notes, and T-bonds?

Accepted Answer

All three are loans to the same borrower, the U.S. Treasury, and the only thing that differs is the maturity. Bills go up to one year, are sold at a discount, and pay no coupon. Notes run from 2 to 10 years and pay a fixed semiannual coupon. Bonds run 20 to 30 years, also with a semiannual coupon. The longer the maturity, the more sensitive the price is to interest-rate moves between issue and maturity, which is why a 30-year bond can lose 25% of its market value in a year while paying every coupon on schedule, but a 13-week bill barely moves. They are the same credit. They are different durations of that credit. Your choice is essentially how much rate risk you want to sign up for in exchange for locking in today's yield.

The T-bill, explained.

Price the bill

T-bills, answered.

The T-bill, explained.

Price the bill

T-bills, answered.

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