Treasury Bills
A Treasury bill is short-dated government debt sold below its face value and redeemed at face value, so the return is the discount rather than a coupon. Because the maturity is measured in weeks or months, its price barely moves when rates change.
A Treasury bill is the simplest security there is. There is one payment, it happens on a known date, and the amount is known when you buy. Everything about it follows from having no coupon.
How it works
You pay less than the face value and receive the face value at maturity. The difference is the entire return, and there are no interest payments along the way.
As the maturity date approaches the price drifts toward face value, which is why a bill held to maturity has an outcome that is known from the day it was bought.
Maturities are typically weeks to a year. Because the money comes back so soon, a change in prevailing rates has very little to discount — so the price hardly moves.
A worked example
Take a bill with a face value of 1,000 maturing in 26 weeks, bought for 976.
The return is 24 on 976, which is 2.459% over the period.
Annualised on the money actually invested, that is about 4.92% — 2.459% multiplied by the number of 26-week periods in a year.
But the quoted discount rate uses the face value as the denominator and a 360-day year, so the same bill is quoted at roughly 4.75%. Two correct numbers describing the same security, and the smaller one is the one on the screen.
The risk moved rather than vanished
A long bond carries interest-rate risk: rates rise, the price falls. A bill carries almost none of that, and it carries reinvestment risk instead.
Rolling bills for five years means twenty reinvestment decisions, each at whatever rate exists on that day. A sustained fall in rates lowers the income steadily and there is nothing locked in.
Which is the honest comparison against a longer bond: one fixes the rate and accepts price movement, the other fixes the price and accepts rate movement. Neither removes the exposure.
Where they fit
They suit money with a known short horizon — a reserve, a deposit due next year, the cash buffer in a withdrawal plan.
On this site’s shared series, a 40% fall needs a 66.67% gain to recover, which at 8% a year takes
6.64 years. Money needed inside that window cannot carry equity risk, and a bill is the instrument
that acknowledges it. The figures are in research/series-measurements.json.
They are also the reference point everything else is priced against, which is why “what does cash pay” is the first question in any allocation decision.
Tax and mechanics
The discount is generally treated as interest income and taxed accordingly in the year the bill matures. In several jurisdictions government debt carries a state or local tax exemption that bank deposits do not, which can make the after-tax comparison different from the headline one.
They can be bought directly from the government in some countries or through a broker, and both routes are ordinary. This is educational, not tax advice.
Costs
Held to maturity, a bill bought directly has essentially no cost. Sold early, it trades at whatever the market pays, and on this site’s shared series a round trip measures about 2% of the median bar range of 0.493.
Matching the maturity to the date you need the money removes that cost entirely, and it is the one piece of planning the instrument rewards.
Building a ladder
Buying several bills with staggered maturities spreads the reinvestment decisions out. A rung matures every month or every quarter, and each one is reinvested at whatever rate exists then.
That does not remove reinvestment risk — it averages it. A ladder built across a falling-rate year still ends up yielding less; it just gets there gradually rather than all at once.
What it does buy is liquidity without early sales. There is always a maturity approaching, so cash becomes available on a schedule instead of requiring a decision to sell.
The original data
Of the 24,971 unique videos in research/search-study-corpus.jsonl, zero have a title about
Treasury bills. Bonds appear in 2 videos at a median of 87,102 views and index funds in 132 at
69,951. The counts come from site/rank_investing.py, which deduplicates by video id.
Zero videos on the instrument that most conservative money actually sits in. The corpus covers trading and it does not cover cash, which is consistent — nothing about a bill is interesting to watch, and it is where a great deal of real money lives.
The answer to the question on that chart is that locking in trades one risk for the other, and the right choice depends on when you need the money. If the horizon is genuinely five years, a longer instrument removes twenty reinvestment decisions. If the horizon is uncertain, the bill’s short maturity is the feature — it hands the money back before the question becomes urgent.
When it fails
The failure is treating a rolling bill position as a permanent home for money that has a long horizon. It feels prudent, the reinvestment happens automatically, and over twenty years it produces a return closer to inflation than to anything that grows purchasing power meaningfully. Nothing goes wrong at any point; the money is simply parked in the instrument designed for the shortest horizon while carrying the longest one, and the cost is invisible because there is never a loss to notice.
The second failure is comparing the discount rate to a bank rate. They are calculated differently.
A third is selling before maturity. The known outcome only applies if you hold it.
A fourth is ignoring reinvestment risk. It is the exposure that replaced price risk.
A fifth is buying through an expensive wrapper. A fee on a low-yielding asset is a large share of the return.
And a sixth is holding them for the safety while needing growth. Safe from price movement is not safe from inflation.
Related
Bonds is the longer-dated version and the opposite risk. Money market funds is the pooled version that rolls them for you. And emergency fund is the job this instrument is usually doing.
The thing worth internalising is that the risk did not disappear, it moved. A long bond carries the risk that rates rise and its price falls. A bill carries the risk that rates fall and the next one pays less. Neither is safe; they are exposed to opposite ends of the same thing.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.