Treasury Bill

T-bills are issued by the U.S. Department of the Treasury and are backed by the full faith and credit of the U.S. government, making them widely regarded as the world's safest short-term investment. They are sold in denominations starting at $100 and come in standard maturities of 4 weeks, 8 weeks, 13 weeks (3 months), 17 weeks, 26 weeks (6 months), and 52 weeks (1 year). T-bills are auctioned weekly by the Treasury through TreasuryDirect.gov and are also actively traded in the secondary market.

Unlike bonds, T-bills pay no periodic coupon. Instead, they are sold at a price below their $1,000 face value. For example, you might pay $980 for a 26-week T-bill that matures at $1,000, earning $20 in profit — a yield of roughly 4.1% annualized. This 'discount pricing' method is a defining characteristic of short-term government paper.

T-bill yields function as a cornerstone of financial markets. The 3-month T-bill yield is widely used as a proxy for the 'risk-free rate' in financial models such as the Capital Asset Pricing Model (CAPM) and the Sharpe ratio. When T-bill yields are high, they compete directly with stocks for investor capital — a dynamic that became especially relevant in 2022–2023, when 6-month T-bills briefly yielded more than 5.5%, making the old '4% safe withdrawal rule' look attractive compared to the volatility of equities.

During the 2008 financial crisis, demand for T-bills was so intense — driven by a 'flight to safety' — that yields briefly went negative in December 2008, meaning investors were willing to pay more than face value just to guarantee their capital was in U.S. government paper. This extraordinary episode underscored T-bills' status as the ultimate safe haven in times of market panic.

For retail investors, T-bills purchased through TreasuryDirect are exempt from state and local income taxes, though they are subject to federal income tax, making them particularly attractive to high-earners in states with high income taxes like California or New York.