Treasury Bills (T-Bills)

Short-term debt instruments that are issued by the government whenever they need money for a short period. They can only be issued by a country's central government.

Treasury bills are short-term debt instruments issued by the government whenever they need money for a short period. A country's central government can only issue them, and the interest they provide depends on the market forces prevailing in a country. 

Treasury Bills (T Bills)

Investors typically lend money to the government when they buy a T-bill. The U.S. Government uses the money from investors to fund its ongoing expenses, including infrastructural projects, salaries, defense, and healthcare expenses.

These bills can be characterized by their maturity period, which has a maximum period of 364 days. Therefore, we can categorize them as money market instruments based on their maturity period. They are issued in three maturities- 91 days, 182 days, and 364 days.

These government bonds are typically sold at a discount from the par amount (also known as the face value). Whenever a bill matures, the investor gets paid its par amount. 

When the par value exceeds the purchase price of the bill, the resulting difference is the interest received by the investor.

It is also vital to note that these bills are particularly popular among income-seeking investors. In addition, these securities are favored and suitable for risk-averse investors looking for a reliable source of income. 

Nevertheless, they do not offer high-interest rates compared to other types of securities.

Factors determining the price and yield

Factors determining are:

1. Maturity period

The time until the maturity of a T-bill has a direct impact on its yield. For instance, a one-year T-bill usually holds a higher rate of return than a three-month one since longer maturities signify an additional risk for investors - the higher the risk, the greater the reward.

For example, a $2,000 Treasury bill can be sold for $1,970 for a three-month maturity, $1950 for a six-month maturity, and $1,900 for a twelve-month maturity. 

As you can see, investors will ask for a higher interest rate to compensate them for lending their money for a longer timeframe.

2. Monetary policies

The Federal Reserve's monetary policy directly affects T- bill prices. An increase in the Federal Funds rate will tend to make other debt securities more attractive for investors, lowering the demand for T-bills.

Monetary policy

As a result, regarding the direct relationship between the price level and demand for a commodity, lower demand for these bills will lead to a rise in its interest rate.

3. Inflation

A rise in the price level is also a factor in determining interest rates. Usually, when the inflation rate in a country is high, the interest rate on bills will also tend to increase. The same applies to periods of falling price levels, which will lead to a lower yield on bills.

Usually, when the inflation rate is higher than the T- bill discount rate, demand for those types of investments will fall since it becomes uneconomical to use them as investment vehicles. Lower demand will then tend to decrease the price of bills, raising their yield.

4. Risk tolerance

The degree of risk tolerance of investors also impacts the price of T-bills. 

If a country's economy is thriving, job opportunities are on the rise, and the inflation rate keeps decreasing, this will instill stability and safety from investors' perspective. This will encourage them to seek alternative, riskier investment strategies that yield higher returns.

Treasury bills vs. Treasury bonds


The difference is:

Treasury bills

  • T- bills are sold at a discounted cost and mature at face value
  • They are negotiable debt instruments and highly liquid 
  • They are issued as a promissory note or a paperless computerized framework
  • T- bills' major players include banks, firms, individuals, and monetary foundations

Treasury bonds

  • They are long term-investment bonds that are issued by the public authority to fund state-based projects
  • They are a low-risk investment instrument, thereby paying a low return to their investors
  • T-bonds ensure a specific rate of return from the investment
  • The principal amount is paid alongside interest at the maturity date, and interest payments are made twice a year
Treasury BillsTreasury Bonds
They are short-term money market instruments issued by the public authorityThey are long-term capital market instruments issued by public authorities
Fluctuations in Price
The cost of Treasury bills is relatively more stable, as they have a lower maturity periodThe cost of Treasury bonds fluctuates more due to their longer maturity period
Different Types
91-day bills, 181-day bills, and 364-day billsCorporate bonds, zero-coupon bonds, municipal bonds
Payment of Interest
Issued at a discounted priceNot issued at a discounted value. Instead, it pays interest twice a year with the face value at maturity
Period to Maturity
Issued with a maturity of one year or lessIssued with a longer maturity period from 10 years and above

Characteristics of government bonds


From the above comparison and description of those two government securities, it is clear that bills differ from Treasury bonds in terms of time for maturity period. 

Treasury bonds are long-term capital market securities with a maturity time of 10 years or more, whereas T-bills are short-term money instruments with a maturity time of one year or less.

T-bills and bonds are safer investments than other options since they are backed by a public authority. 

While T- bills are given at discounted cost and mature at face value, T- bonds pay interest twice a year. Moreover, no securities are issued for fundraising state projects.

How to start investing in Treasury bills

Investing decisions

The steps to start investing are:

Step 1: Open a CDS Account

The first step is to open a CDS account with the Central Bank, allowing them to monitor who holds which government securities. Once the CDS account is set up, the investor can invest in multiple bills and bonds.

To open a CDS account, the user should already have a bank account with the bank they intend to buy the bills from. The next phase is to collect a mandate card from the Central Bank or any branches and fill it in. 

In this document, the contact information and details of the user's bank account should be provided.

Accompanied with the mandate card should be passport-sized photographs of the person, which must be certified and stamped by a representative from their commercial bank. Lastly, a clear copy of the National Identity Card should be submitted.

Step 2: Select the way you want to invest

Since these bills are offered weekly, with maturities of 91 days, 182 days, and 364 days, the investor should choose from one of those options before getting started. The person must then decide on maturity length after researching recent interest rates.

This will give them a clear idea of the return on investment and how long they will have to commit their funds.

Step 3: Complete and Submit an Application Form

Once the person is committed to invest, they must complete a treasury bill application form, which includes information about the bill they intend to purchase. Information includes the maturity period, the face value amount they want to receive upon maturity, and the issue number.

Submitting application

The application form also contains the investor's personal information, such as names, telephone numbers, CDS account numbers, and the source of the funds being invested (local or offshore).

When filling out the application form, the individual has two options. This will determine how much they're going to pay for the bill and the return they shall receive at maturity. Those two options consist of the interest competitive rate or the non-competitive/average rate.

It is essential to note that those who are going for the competitive interest rate must ensure that the interest rates they are willing to receive don't exceed the cutoff rate imposed by the central bank since those who submit interest rates above the cutoff are not entitled to bills.

On the other hand, investors who choose the non-competitive rate are 100% entitled to receive the bills from the auction. The setback from this option is that they will always obtain lower returns than those who opted for the interest-competitive rate.

The last section of the application form is the rollover instructions. These are making it easier for existing investors to reinvest by using their returns to purchase additional government securities.

Step 4: Get the Auction Results

Following the application form submission, investors need to visit the central bank/central bank website to determine if their applications were accepted and see how much they owe for their bills.

Step 5: Payment

Next is to proceed with the payments of the bills. This can be done at the financial institution itself. 

It is vital to note that successful applicants who fail to execute the required payments shall be banned from undertaking future investments in government securities.


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Researched and Authored by Alvin Dookhony | LinkedIn

Reviewed and edited by James Fazeli-Sinaki | LinkedIn

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