What are treasury bills?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Treasury bills (also known as T-bills) are a US government security.  They are sold by the government as a way of financing government debt.  They are also bought and sold by the government as a tool of monetary policy.

Treasury bills are a guarantee that the government will pay the holder $1000 on a given date.  The bills are sold with maturity dates that can be 4 weeks, 13 weeks, 26 weeks, or 52 weeks in the future.  In other words, this is very short term debt.  The bills are put up for auction.  Buyers pay a price that is lower than $1000.  When the T-bill matures, they get the $1000.  This means that they will want to purchase the bond for the lowest price possible.  The return on their investment is whatever the difference is between $1000 and the price they pay for the T-bill.

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