Treasury bills (T-bills) are short-term debt instruments issued by the government to meet its short-term financing needs. They are issued with a maturity period of up to one year, and the government pays the face value of the bill to the holder upon maturity. T-bills are typically issued through an auction process, where investors bid for the bills at a discount to their face value.
T-bills are considered one of the safest investments as they are backed by the government, which has a very low risk of default. They are also highly liquid instruments, meaning that they can be easily bought or sold in the secondary market before their maturity. The interest rate on T-bills is determined through the auction process and is called the discount rate. The discount rate is the difference between the face value and the price at which the bill is sold at the auction.
T-bills are of three types based on their maturity period:
- 91-day T-bills: These bills have a maturity period of 91 days and are issued at a discount to their face value.
- 182-day T-bills: These bills have a maturity period of 182 days and are also issued at a discount to their face value.
- 364-day T-bills: These bills have a maturity period of 364 days and are issued at a discount to their face value.
T-bills are used for short-term financing needs of the government, such as meeting its short-term borrowing requirements, refinancing existing debt, and managing its cash flow. They are also used by banks and financial institutions to park their surplus funds for a short period and earn a return on their investment.
T-bills are short-term debt instruments issued by the government to meet its short-term financing needs. They are considered safe investments as they are backed by the government and are highly liquid instruments. The interest rate on T-bills is determined through the auction process, and they are of three types based on their maturity period – 91-day, 182-day, and 364-day T-bills.