A complete guide to Treasury bills

US Treasury bills sit at the center of the dollar money markets. The US government uses them to manage its day-to-day funding, and their yields serve as a reference point for most short-term dollar instruments. 

For finance teams with surplus dollar cash, T-bills offer a direct, short-term claim on the US government. For corporate treasury teams, it’s vital there’s a clear understanding of how Treasury bills work, are priced, taxed, and, of course, accessed.

What are Treasury bills?

A Treasury bill is a short-term debt security the US Treasury issues to borrow money for up to one year. It pays no coupon, so there are no periodic interest payments. Investors buy it at a discount and receive the full face value at maturity. The difference is their return.

The Treasury first issued bills in 1929. Today, several trillion dollars of bills are outstanding at any given time, giving the market considerable depth and allowing large trades to be absorbed without moving prices much.

Because T-bills are backed by the full faith and credit of the US government, markets treat them as the benchmark risk-free asset in dollars. Banks hold them as Level 1 high-quality liquid assets, and government money market funds invest heavily in them. Their yields also act as a reference for pricing commercial paper, certificates of deposit, and other short-term dollar instruments.

Treasury bills, notes, and bonds

Bills, notes, and bonds are all US government debt, but they differ in maturity and in how they pay interest. Treasury notes run from two to ten years, Treasury bonds run for 20 or 30 years, and both pay a fixed coupon every six months. Bills cover the short end, with terms of up to 52 weeks and no coupon.

The difference matters for treasurers because longer maturities mean larger price moves when interest rates change. A 30-year bond can lose a meaningful share of its value in a sell-off. A 13-week bill held to maturity pays its face value regardless of what happens in the market. Notes and bonds close to maturity behave much like bills, so some investors use them to meet short-term needs.

How do US Treasury bills work?

The Treasury issues bills through regular public auctions run by its Bureau of the Fiscal Service. It uses bill issuance to manage its cash position, increasing supply when spending outpaces tax receipts and cutting back when cash is plentiful. The Treasury issues bills in electronic book-entry form, with no paper certificates.

Maturities and the auction schedule

Standard bill terms are 4, 6, 8, 13, 17, 26, and 52 weeks. The Treasury auctions most terms every week, while the 52-week bill is auctioned every four weeks. The Treasury announces each auction a few days in advance, setting out the amount on offer and the settlement date.

Alongside the regular schedule, the Treasury issues cash management bills (CMBs) with variable terms when it has short-term funding. CMBs don't follow a fixed calendar and aren't available through TreasuryDirect, so investors buy them through a bank or broker.

How to buy Treasury bills

Bidders can submit competitive or non-competitive bids at each auction. A non-competitive bid accepts whatever rate the auction sets and guarantees an allocation of up to $10m. A competitive bid specifies the discount rate the bidder will accept, and a single bidder can be awarded up to 35% of the offering amount.

Individuals can buy bills in $100 increments through TreasuryDirect, the government's online platform. Competitive bids must go through a bank, broker, or dealer, and the largest participants are the primary dealers that trade directly with the Federal Reserve Bank of New York. Most corporations buy through their relationship bank or broker, either at auction or in the secondary market, and hold the bills with a custodian.

How are Treasury bills priced?

A T-bill's price reflects the return investors require for lending to the US government over that period. With no coupon, the entire return comes from the gap between the purchase price and the face value at maturity. Higher rates mean lower prices, and lower rates mean higher prices.

At each auction, the Treasury accepts competitive bids from the lowest discount rate upward until the offering is filled. Every successful bidder then pays the same price, set by the highest accepted rate. The Treasury publishes results shortly after each auction, including the bid-to-cover ratio, which shows how many times over the offering was bid.

How much will a 3-month Treasury bill pay?

US bills are quoted on a discount basis, which applies the discount rate to face value over a 360-day year. The price per $100 of face value is 100 × (1 − discount rate × days ÷ 360). The Treasury also publishes an investment rate for each auction, which restates the return as a bond-equivalent yield for easier comparison with other instruments.

Say a treasurer buys $5m of a 13-week (91-day) bill at a 4.00% discount rate. The price is about $98.989 per $100, so the company pays around $4,949,444 at settlement and receives the full $5m at maturity, earning about $50,556. The equivalent investment rate is roughly 4.10%. It's higher than the discount rate because it measures the return against the lower purchase price, over a 365-day year.

This rate is for illustration only. Actual rates change with every auction, and the Treasury publishes results on TreasuryDirect, so check the latest figures before comparing T-bills with other options.

How much does a $1,000 Treasury bill cost?

The cost depends on the bill's term and the discount rate set at auction. At an illustrative 4.00% discount rate, a 26-week (182-day) bill with a $1,000 face value costs about $979.78. The buyer receives $1,000 at maturity, a return of around $20.22 over six months.

What drives Treasury bill yields?

The main driver is where the market expects the Federal Reserve's policy rate to sit over the bill's term. The Federal Open Market Committee (FOMC) sets a target range for the federal funds rate, and bill yields tend to track expectations for that range over each bill's life.

Supply and demand matter too. Heavier bill issuance can push yields up, while strong demand from money market funds and banks can pull them down. Debt ceiling standoffs can also distort the curve: bills maturing around a potential default date have traded at noticeably higher yields than neighboring maturities.

Are Treasury bills taxable?

Interest on T-bills is subject to federal income tax but exempt from state and local income taxes. For bills, the interest is the difference between the purchase price and the amount received at maturity or on sale.

For corporations, the return is generally taxed as interest income at the federal level. Some states include Treasury interest when calculating income-based franchise taxes, so the state exemption doesn't always apply in full. Tax treatment depends on each organization's circumstances, so finance teams should seek specific advice before adding T-bills to their cash strategy.

Do Treasury bills count as cash equivalents?

Under US GAAP (ASC 230), cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash. In practice, that means an original maturity of three months or less when the entity acquires the investment. A 13-week bill bought at issue usually qualifies, while a 26-week bill is generally classified as a short-term investment instead.

What are the risks of Treasury bills?

Credit risk on US T-bills is very low, but it still belongs in the analysis. All three major rating agencies now rate the US one notch below their top grade, with Moody's the last to move in May 2025. Recurring debt ceiling negotiations add a political dimension that investment policies should reflect when setting tenor and exposure limits.

Interest rate risk only matters if you sell a bill before it matures. If rates rise after you buy, the bill's market value falls, and selling early locks in that loss. If you hold it to maturity, you receive the full face value.

Reinvestment risk works the other way. When a bill matures, you have to reinvest at whatever rate is available then. Inflation matters as well: if the yield is below inflation, your cash loses real value over the term.

Liquidity risk is low, since the bill market trades in very large volumes every day. Institutions with dealer relationships can usually sell a bill before maturity, but they'll pay a bid-offer spread. Our guide to liquidity risk explains how to plan for these trade-offs.

Is it good to invest in Treasury bills?

Whether T-bills fit depends on your cash needs and the rest of your portfolio. They work well for cash you won't need for a defined period. They offer high credit quality and a predictable return, but buying them directly may not justify the setup for smaller balances.

Are Treasury bills better than CDs?

A certificate of deposit (CD) is a bank deposit with a fixed rate and a fixed term. FDIC insurance covers up to $250,000 per depositor, per insured bank, for each ownership category, so most of a large corporate balance remains an uninsured claim on the bank. T-bills shift that exposure to the US government, and their interest is exempt from state income tax, unlike CD interest. CDs can also be simpler to set up through an existing banking relationship.

Government money market funds are the other common comparison. They provide daily access and diversification, but they pool investors' cash and can hold assets with longer maturities than the liquidity they offer. Our guide to money market funds explains that trade-off, and our guide to why diversification matters for corporate cash shows how to build a mix.

Accessing T-bills through TreasurySpring

For most companies, the challenge is access, not suitability. Buying bills directly means setting up dealer relationships, custody arrangements, and internal processes to manage each holding. Many finance teams don't hold enough surplus cash to justify that setup.

TreasurySpring gives you exposure to a single US Treasury bill through a fixed-term, maturity-matched structure, without requiring you to arrange your own dealer or custody relationships. You choose the term, lock in a fixed rate, and receive principal plus interest at maturity. Each investment matches one bill and its maturity, so your cash isn't pooled with other investors.

You can see how this works on the TreasurySpring platform. The same structure also gives you access to bills from Canada, the UK and eight other governments. Alongside sovereign exposure, the platform offers bank, corporate and secured repo options, so you can diversify issuers within one portal.

Putting Treasury bills to work

Treasury bills give treasurers a short-term claim on the US government, priced transparently at regular auctions. Understanding how they're issued, priced, and taxed makes it easier to decide how they sit alongside bank deposits, money market funds, and secured lending. The right mix depends on your cash forecast, risk appetite, and investment policy.

To see how T-bills could fit your cash strategy, contact our team. We can walk you through the government options available and how they compare with your current holdings.

For anyone who can’t tell the difference between their SEC and their ASC, we’ve introduced our Treasury & Cash Investment Glossary.

*TreasurySpring’s blogs and commentaries are provided for general information purposes only, and do not constitute legal, investment or other advice.