Treasury Bill Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Treasury Bill, written in plain English, along with examples of how it is used.

What is Treasury Bill?

It is a promissory note issued by the US government and having a maturity of one year or less.It is exempted from state and local taxes.

History and Meaning of Treasury Bill

Treasury bills, also known as T-bills, are a type of short-term debt security issued by the US government. They were first introduced in the 1920s to fund government spending and finance the national debt. T-bills have a maturity of one year or less, with denominations ranging from $1,000 to $5 million.

T-bills are considered to be one of the safest investments available since they are backed by the full faith and credit of the US government. They are issued at a discount to their face value, and the difference between the purchase price and face value is the investor's profit. T-bills are also exempt from state and local taxes, making them an attractive option for investors seeking tax-free income.

Examples of Treasury Bill

  1. An investor purchases a $10,000 Treasury bill with a maturity of six months at a discount price of $9,800. At maturity, the investor receives the full face value of $10,000, resulting in a profit of $200.

  2. The US government issues $100 billion in Treasury bills to finance its budget deficit. Investors purchase the T-bills, providing the government with the necessary funds to operate.

  3. A retiree invests a portion of their savings in Treasury bills to generate a steady stream of income without incurring state and local taxes.

Legal Terms Similar to Treasury Bill

  1. Treasury Note: A type of government security with a maturity of 1-10 years.
  2. Treasury Bond: A type of government security with a maturity of 10-30 years.
  3. Municipal Bond: A debt security issued by state and local governments to fund public projects.