Treasury bills

How they work

A Treasury bill is the simplest US government security. It matures in one year or less, with regular auctions for terms from four weeks to 52 weeks, and it pays no periodic interest. Investors buy it at a discount to its face value and receive the full face value at maturity; the difference is their interest.

Bills are auctioned every week and trade in one of the deepest, most liquid markets in the world. Money market funds, banks, companies managing their cash and foreign central banks all hold them.

Why the Treasury relies on them

Bills are flexible. When the government needs to borrow quickly — as in 2020, during the pandemic — it can increase bill issuance within weeks, while longer-term notes and bonds follow a steadier schedule. When the yield curve slopes upward, bills are also cheaper than long-term debt.

The Treasury’s advisory committee of market participants has long suggested keeping bills at roughly 15 to 20 percent of marketable debt over time. The actual share has at times risen above that range.

The risk they carry

The flip side of a short maturity is exposure to changing interest rates. A bill that matures in three months has to be refinanced at whatever rate prevails then. When the Federal Reserve raised rates sharply in 2022 and 2023, the cost of the government’s bill financing rose almost immediately, while older long-term bonds kept their lower fixed rates.

A debt heavy in bills therefore passes rate changes through to the budget faster. That is one reason interest costs rose so quickly in recent years, and why the mix of short- and long-term borrowing is a strategic choice rather than a technical detail.

A benchmark for the world

Because the US government is regarded as the safest borrower in dollars, the yield on short-term bills is widely used as the risk-free rate against which other investments are priced.