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Treasury bills (T-bills) are short-term debt securities issued by the federal government that mature in increments that range from four weeks to a year.
They differ from other Treasury-issued securities ( T-bonds and T-notes) by those shorter maturity periods and because they don’t pay periodic interest rates.
Instead, T-bills are auctioned by the government at a discount to their face value, and the total return amounts to the difference between what you paid and the face value at maturity.
Factors that influence T-bill yieldsHere are some of the factors that influence T-bill yields:Interest rates: T-bill returns tend to move in tandem with the federal funds rate, or Fed rate.
Term: Typically, the longer the term, the higher the yield (and thus, the lower the price relative to face value).
This is because investors take a greater risk that rates will go up as they tie up their money for longer periods.
Inflation: If the annualized yield on a T-bill falls below the rate of inflation, it becomes less attractive to investors, as they would in effect lose money on their investment.
Macroeconomic conditions: In a robust and expanding economy, investors have many options, and T-bill and other bond prices will ly fall (thus increasing the yield) to stay competitive.
Conversely, in times of uncertainty, demand for T-bills and their relative safety can increase. This pushes the price higher.
»MORE: For a detailed look at how T-bills work, and how to buy them, check out NerdWallet’s beginner’s guide to T-bills.
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