Treasury bill (T-bill)
Also known as: t-bill
A Treasury bill (T-bill) is a short-term debt security issued by the US government with a maturity of one year or less. T-bills pay no coupon interest; instead, they are sold at a discount and mature at face value, with the difference representing the investor's return.
A Treasury bill is the shortest-term security issued by the US Treasury, with maturities of 52 weeks or less — commonly 4, 8, 13, 17, 26, and 52 weeks. Because T-bills are direct obligations of the US government, they carry virtually no default risk and are considered among the safest investments available.
T-bills work differently from most bonds. They make no periodic interest payments. Instead, investors buy them at a discount to face value and receive the full face value at maturity. For example, an investor might pay $9,800 for a T-bill that pays $10,000 at maturity; the $200 difference is the interest earned. Because of this structure, T-bill quotes are stated on a discount yield basis rather than as a price.
A common exam question asks whether T-bills are callable — they are not. No Treasury securities issued today are callable; the government cannot redeem a T-bill early, and its short maturity makes a call feature pointless anyway. T-bills also serve as the benchmark for the risk-free rate used throughout finance, and their interest is taxable federally but exempt from state and local income tax.
The SIE exam tests T-bills within the US government debt section. Know the three core distinctions among Treasury products: bills (one year or less, sold at a discount, no coupon), notes (2 to 10 years, semiannual coupons), and bonds (20 to 30 years, semiannual coupons). Recognizing that T-bills are the discounted, non-callable, short-term member of the family answers most questions about them.
Key takeaways
- T-bills are US government debt securities with maturities of one year or less.
- They pay no coupon; investors buy at a discount and receive face value at maturity, earning the difference.
- T-bills are not callable — the Treasury cannot redeem them before maturity.
- Their yield serves as the market's benchmark risk-free rate, and interest is exempt from state and local tax.
- On the SIE, distinguish bills (discounted, short-term) from notes and bonds (coupon-paying, longer-term).