Treasury bills, also known as T-bills, are short-term U.S. government debt obligations with maturities no longer than one year. Common maturities include 4, 8, 13, 17, 26, and 52 weeks
Discount Instrument: This is the most distinctive feature. Unlike bonds or notes that pay periodic interest payments (coupons), T-Bills do not pay interest directly. Instead, they are sold at a discount from their face value (or par value). When the T-Bill matures, the investor receives the full face value.
Example: You might buy a $1,000 T-Bill for $980.
When it matures, you receive $1,000.
Your "interest" or profit is the difference between the face value and the purchase price: $1,000 - $980 = $20.
- T-bills do not have to be retained by the initial investor throughout their entire term. At any point during a T-bill’s term, an investor is able to sell it to another investor through secondary financial markets. Prevailing yields on T-bills at the time of sale are used to calculate the price.
Gemini AI
(Can you provide a summary of how US treasury bills work and how they are similar to simple interest)
(On Bloomberg they list treasury yields with a column for price and a column for yield. For instance, 3-month, price 4.24, yield 4.34%. Can you explain these factors on a $100 par value T-Bill?)
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