Treasury Bills
Short-term US government debt sold at a discount to face value.
Short-term government debt behaves differently from a savings account
Treasury bills are short-term obligations of the U.S. government. Investors generally buy them for a price below the amount received at maturity, with the difference representing the investment return.
Because maturities are short, Treasury bills have less interest-rate sensitivity than longer-term bonds. That does not make their return fixed forever. When a bill matures, the rate available on the next bill may be higher or lower.
Holding to maturity versus selling early
An investor who holds a Treasury bill to maturity knows the contractual amount that will be paid by the U.S. Treasury. Selling before maturity introduces a market price.
That distinction matters when comparing a Treasury-bill ladder with a savings account, money-market fund or longer-term bond portfolio. The best choice depends partly on when the cash will be needed.
Common mistakes
- ×Overlooking reinvestment risk when rates fall at maturity
- ×Assuming the state tax exemption applies to every Treasury product
- ×Selling before maturity and realising a price loss
- ×Rolling bills indefinitely for money with a multi-decade horizon