T-Bill
Short-term U.S. Treasury debt maturing in 4, 8, 13, 26, or 52 weeks, sold at a discount to face value rather than paying coupon interest.
Formula
Discount Yield = (Face Value − Purchase Price) / Face Value × (360 / Days to Maturity)
A Treasury Bill (T-Bill) is a zero-coupon instrument — it pays no periodic interest. Instead, it is issued at a price below its $1,000 face value; the difference between the purchase price and par is the investor's return.
T-Bills are the closest proxy for the risk-free rate in the short end of the yield curve and are the primary instrument the Fed influences via its fed funds rate policy. Money market funds, corporate cash managers, and foreign central banks hold T-Bills as liquid, near-zero-risk reserves.
In a risk-off environment, T-Bill yields can compress dramatically as demand surges for safety and liquidity.
Example
A 26-week T-Bill is auctioned at $98.00 per $100 face value. At maturity you receive $100, earning $2 — an annualized yield of approximately 4.08%.
Related Terms
Federal Funds Rate
The overnight interest rate at which U.S. banks lend reserve balances to each other — the primary policy rate the Fed targets to steer the economy.
IntermediateT-Note
U.S. Treasury notes with maturities of 2, 3, 5, 7, or 10 years, paying semi-annual coupon interest — the most widely traded government securities.
IntermediateTreasury Security
Debt issued by the U.S. federal government through the Treasury Department — the benchmark risk-free asset in global finance.
BeginnerYield Curve
A graph of Treasury yields across all maturities — from 3 months to 30 years — that maps the term structure of interest rates at a given moment.
IntermediateZero-Coupon Bond
A bond that pays no periodic coupon, sold at a discount to face value; the entire return is the gap between purchase price and par at maturity.
Intermediate