Treasury bill definition
/What is a Treasury Bill?
A treasury bill is a short-term debt security that is issued by the United States government to raise money. It has the following characteristics:
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Maturity dates . It is issued with maturity dates of either four weeks, 13 weeks, or 26 weeks.
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Interest rate . There is no stated interest rate on the instrument; instead, it is sold at a discount to the face amount, and the buyer earns interest on the difference between the discounted purchase price and the redemption amount.
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Purchase process . Treasury bills are sold via a competitive bidding process, so the discount amount will vary by auction. For example, the Treasury sells a treasury bill with a face value of $1,000 for $984. The $16 difference is the interest that the investor will earn.
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Rate of return . The return on treasury bills tends to be quite low, because they are perceived to have no risk.
Who Buys Treasury Bills?
Treasury bills are popular among investors who want to avoid all risk , since these instruments are backed by the credit of the United States government. Institutional investors are the primary purchasers of treasury bills.
