What Is a T-Bill?

A Treasury Bill or T-Bill is a debt obligation issued by the U.S. Department of the Treasury. Of the debt issued by the U.S. government, the T-Bill has the shortest maturity, ranging from a few days to one year. T-Bills are typically sold at a discount to 澳洲幸运5官方开奖结果体彩网:par value (also known as 澳洲幸运5官方开奖结果体彩网:face value). When the bill matures, you are paid par value. The difference between your purchase price and par value represents your interest.

T-Bills can be purchased in increments of $100 (in maturity value). They resemble 澳洲幸运5官方开奖结果体彩网:zero-coupon bonds in that they are issued at a discount and mature at par value, with the difference between the purchase price and par value representing the interest paid to the investor. T-Bills are issued in maturities of 4, 8, 13, 17, 26, and 52 weeks. There are auctions featuring different maturities every week except the 52-week T-Bill, which is sold every four weeks.

For example, a T-Bill with a maturity of 26 weeks might be sold every week for $999.86 and mature at a value of $1,000. The discount rate is calculated at the time of auction.

T-Bills vs. Treasury Bonds vs. Treasury Notes

The primary difference between a T-Bill, a 澳洲幸运5官方开奖结果体彩网:Treasury Bond, and a 澳洲幸运5官方开奖结果体彩网:Treasury Note is the maturity date. The Treasury Bond has the longest maturity at 20 or 30 years, though maturities of 50 and 100 years are also under consideration.

The Treasury Note matures in two to 10 years. The T-Bill matures in a year or less. The debt is issued by the U.S. Treasury to raise capital, and the return of the principal plus interest is guaranteed to investors regardless of what happens in the 澳洲幸运5官方开奖结果体彩网:bond or stock markets.

How to Bid for T-Bills

Investors can submit two different types of 澳洲幸运5官方开奖结果体彩网:bids for T-Bills:

• Non-competitive bids. This type of bid is akin to a 澳洲幸运5官方开奖结果体彩网:market order. The investor agrees to accept the discount rate determined at auction. Investors who take this bid are guaranteed to have their orders filled. A noncompetitive bid can be placed through 澳洲幸运5官方开奖结果体彩网:TreasuryDirect or a bank or broker.
• 澳洲幸运5官方开奖结果体彩网:Competitive bids. With this type of bid, the investor specifies the 澳洲幸运5官方开奖结果体彩网:discount rate they are willing to accept. If your bid is better than the discount rate set in the auction, your order will be filled. Otherwise, your order could be partially filled or rejected. This type of bid cannot be placed through Treasury Direct. You must use a bank or broker.

In a single auction, investors can buy up to $10 million in T-Bills in non-competitive bidding, or 35% of the offering amount in competitive bidding.

Tax Treatment and Yields

The interest paid on T-bills is taxed at the federal level but is exempt at the state and local levels. For this reason, T-bills are attractive to investors in states with high 澳洲幸运5官方开奖结果体彩网:tax rates. Investors have the option of having up to half of the interest paid on their bills withheld for tax purposes.

The yields on T-Bills are typically slightly lower than comparable securities such as 澳洲幸运5官方开奖结果体彩网:certificates of deposit (CDs). This is because of their perceived safety due to the government guarantee of interest and p🥀rincipal. O🅷f course, the yield on a T-Bill rises as the time to maturity lengthens.

Investing With T-Bills

Investors with short time horizons can use a laddering strategy to maximize yields and minimize risk. This co😼ncept allows parcels of cash to become available periodically that can be reinvested at prevailing market rates.

Another strategy is to invest the majority of a portfolio in T-Bills and then allocate a very small percentage into aggressive assets such as 澳洲幸运5官方开奖结果体彩网:derivatives ๊that could appreciate subsꦏtantially if the markets move in the right direction.

Of course, if the markets move in the opposite direction, the T-Bills will grow back to the original amount of principal at maturity. Or they may need to be reinvested a time or two, depending on the ratio of T-Bills to 澳洲幸运5官方开奖结果体彩网:risky assets in the portfolio.

Safety and Risks

Because the primary characteristic of T-Bills is that they offer a guaranteed return of principal, they typically function as the safe portion of an investment portfolio. They are often used in lieu of cash by knowledgeable investors who understand they pay a higher rate of interest than cash instruments or accounts such as 澳洲幸运5官方开奖结果体彩网:money market funds.

This also makes them attractive for institutions bound by 澳洲幸运5官方开奖结果体彩网:fiduciary requirements that prevent them from risking the principal of their funds in any way. However, T-Bills are still subject to both 澳洲幸运5官方开奖结果体彩网:inflation risk and 澳洲幸运5官方开奖结果体彩网:interest-rate risk, and investors who seek to 澳洲幸运5官方开奖结果体彩网:outperform tܫhe markets over time should generally look elsewhere🎃 to fulfill their investment objectives.

The Bottom Line

T-Bills are useful for conservative investors who seek higher yields than what is available in cash accounts such as money market funds. Although T-Bills rarely offer real 澳洲幸运5官方开奖结果体彩网:inflation-adjusted returns, they do offer liquidity, the safety of 澳洲幸运5官方开奖结果体彩网:principal, and exemption from state and local taxation.