Treasury Bills

A Treasury Bill, or T-Bill, is a short-term loan you make to the US government. Instead of paying you interest along the way, the government sells you the bill for less than it's worth and then pays you the full face value when it matures. The difference between what you paid and what you get back is your return.

For example, the government might offer a bill that will pay $1,000 when it matures in a few months. Rather than sell it for $1,000 and pay interest on top, they sell it to you upfront for something less, say $980. When the bill matures, you get $1,000. Your profit is the $20 gap, and that gap is what people mean when they quote a T-Bill's "yield."

T-Bills are issued with a range of maturities, all under a year, from as short as a few days out to about 52 weeks. Because the government is the borrower and the loans are so short-dated, T-Bills are treated as one of the safest and most liquid instruments in the financial system, they trade constantly, and their prices barely move day to day compared to stocks or longer-term bonds.

The nuance that trips people up is the discount mechanic itself: a T-Bill has no coupon, no periodic interest payment, and no listed "price chart" that looks like a stock. Its price is really just an expression of prevailing short-term interest rates, when rates rise, new bills get sold at a bigger discount (lower price) to offer a competitive yield, and when rates fall, the discount shrinks. Traders sometimes park uninvested cash in T-Bills between trades because they're liquid and pay a modest, low-risk return rather than sitting idle.