Treasury Bills (T-Bills) are a type of short-term debt instrument that is issued by the government to finance various public expenditures. T-Bills are typically issued for maturities of less than one year, such as 28 days, 91 days, 182 days, or 364 days. Purchasers buy T-Bills at a discount to their face value, and upon maturity, they receive the full face value, with the difference representing the interest earned.
For instance, if an investor purchases a $10,000 T-Bill at $9,800, upon maturity they will receive $10,000, the difference of $200 being the yield. T-Bills are considered to be among the safest investments because they are backed by the full faith and credit of the government issuing them.
In a financial context, T-Bills are often seen as a benchmark for short-term interest rates and are utilized by investors, including institutional investors, as part of a diversified portfolio. For example, they are sometimes recommended for individuals seeking secure, low-risk investment options. T-Bills can also be traded in secondary markets before maturity, allowing for liquidity.