What is a Treasury Bill?

Introduction

A Treasury bill (T-bill) is a short-term government debt security with a maturity of one year or less. They are considered one of the safest investments because they are backed by the full faith and credit of the issuing government.

How T-Bills Work

T-bills are sold at a discount to their face value and do not pay periodic interest (coupons). Instead, you earn the difference between the purchase price and the face value at maturity.

• Face value: The amount you receive at maturity (e.g. £1,000)
• Purchase price: Less than face value (e.g. £985)
• Your return: The discount (£15 in this example)
• Maturity: Typically 1, 3, 6, or 12 months

Why Invest in T-Bills?

T-bills appeal to investors for several reasons:

• Safety: Backed by government, extremely low default risk
• Predictability: Known return at a fixed maturity date
• Liquidity: Can be sold on secondary markets before maturity
• Short duration: Lower exposure to interest rate changes

Risks to Consider

While T-bills are among the safest investments, they are not entirely risk-free. Inflation risk means your real return may be negative if inflation exceeds the yield. Opportunity cost is also a factor — the safety of T-bills comes with lower returns compared to riskier assets.