Treasury Bill: Money Market Instrument

Treasury Bill: Money Market Instrument

Treasury Bill

A Treasury bill is principally an instrument of short-term borrowing by the Government maturing in less than one year. Treasury bills are issued in the form of a promissory note. They are highly liquid and have assured yield and slight risk of default.

T-bills are well accepted with institutional investors because, being backed by the government’s full trust and credit, they come adjoining to a risk free investment. They are issued at a price which is lower than their face value and repaid at par. The difference between the price at which the treasury bills are issued and their redemption value is the interest receivable on them and is called discount. These debt obligations are issued in maturities of four, 13 and 26 weeks in various denominations as low as $1,000.

For example, a 26-week T-bill is priced at $9,800 on issuance to pay $10,000 in six months. No interest payments are made.