======U.S. Treasury Bill (T-Bill)======
A U.S. Treasury Bill (also known as a 'T-Bill') is a short-term debt obligation issued by the [[U.S. Department of the Treasury]]. Think of it as a loan you make to the U.S. government that it promises to repay in a year or less. What makes T-Bills unique is how they pay you interest. Instead of sending you regular interest checks, they are sold at a discount to their [[face value]] (or par value). For example, you might buy a $1,000 T-bill for $985. When it matures, the government pays you the full $1,000. That $15 difference is your return. Because they are backed by the 'full faith and credit' of the [[U.S. government]], which has the power to tax and print money, T-Bills are considered one of the safest investments on the planet. For this reason, their yield is often used as the benchmark for the '[[risk-free rate]]' of return in finance. They are a cornerstone of the global financial system and a fundamental tool for conservative investors.
===== How Do T-Bills Work? =====
The beauty of a T-Bill lies in its simplicity. It's a straightforward promise that is easy to understand and even easier to own.
==== The Discount Mechanism ====
A T-Bill is a classic example of a '[[zero-coupon bond]]'. This fancy term simply means it doesn't pay periodic interest (coupons). All of your profit comes at the very end, in one lump sum.
Let’s walk through a simple example:
  * You decide to buy a 26-week (6-month) T-bill with a face value of $10,000.
  * The government auctions it to you for a discounted price, say $9,750.
  * You hold the T-bill for 26 weeks. You don't receive any payments during this time.
  * On the maturity date, the U.S. Treasury automatically deposits the full $10,000 face value into your account.
  * Your profit is $10,000 - $9,750 = $250. It’s that simple.
==== Maturities ====
T-Bills are defined by their short lifespans. They are issued with the following standard maturities:
  * 4 weeks (about 1 month)
  * 8 weeks (about 2 months)
  * 13 weeks (about 3 months)
  * 17 weeks (about 4 months)
  * 26 weeks (about 6 months)
  * 52 weeks (1 year)
This short-term nature distinguishes them from their longer-term cousins: [[U.S. Treasury Note]]s (T-Notes), which have maturities from two to ten years, and [[U.S. Treasury Bond]]s (T-Bonds), which mature in 20 or 30 years.
===== Why Should a Value Investor Care? =====
For followers of [[value investing]], T-Bills aren't just a boring government security; they are a strategic tool. As Warren Buffett says, "The first rule of an investment is don't lose money. And the second rule of an investment is don't forget the first rule."
==== The Ultimate Safe Haven ====
The primary appeal of a T-Bill is its unparalleled safety. The risk of the U.S. government failing to pay you back is practically zero, which eliminates [[default risk]]. In a world of volatile stock markets and unpredictable economic events, T-Bills offer a near-certain return of your [[capital]]. This certainty is the bedrock of a conservative investment strategy.
==== A Place to Park Cash ====
A patient value investor often has to wait for the right opportunity—a great company selling at a bargain price. These moments can be rare. So, what do you do with your cash while you wait? Leaving it in a low-yield savings account means inflation eats away at your purchasing power, a phenomenon known as '[[cash drag]]'.
T-Bills solve this problem. They provide a safe, liquid place to "park" your cash, earning a better return than a typical bank account while you scan the market for your next great investment. This keeps your capital productive and ready to be deployed instantly when Mr. Market offers you a fat pitch.
==== The 'Risk-Free Rate' Benchmark ====
The yield on a short-term T-Bill is the "risk-free rate" that anchors the entire world of investment valuation. When you analyze a stock using a [[Discounted Cash Flow (DCF)]] model, you must estimate a discount rate to determine the present value of future earnings. This discount rate always starts with the risk-free rate. Any other investment (stocks, corporate bonds, real estate) must offer a higher expected return to compensate you for the additional risk you're taking on. Understanding the T-bill yield gives you the fundamental starting point for valuing //everything// else.
===== How to Buy T-Bills =====
Buying T-Bills is more accessible than ever for ordinary investors.
  - **Directly from the Source:** You can buy T-Bills directly from the U.S. Treasury at auction through their website, TreasuryDirect.gov. It’s an online, commission-free platform that makes you feel like a financial insider.
  - **Through a Broker:** Nearly all major brokerage firms allow you to purchase T-Bills, either new issues at auction or existing ones on the [[secondary market]]. This is often more convenient if you want to keep all your investments in one account.
  - **T-Bill ETFs and Mutual Funds:** For ultimate simplicity, you can buy an [[Exchange-Traded Fund]] (ETF) or a [[mutual fund]] that holds a constantly revolving portfolio of T-Bills. This gives you instant diversification for a small management fee, known as an [[expense ratio]].
===== A Quick Word on Taxes =====
T-Bills have a very attractive tax feature. The interest income you earn is:
  * **Taxable at the federal level.**
  * **Completely exempt from all state and local income taxes.**
This tax exemption can be a significant advantage for investors living in states with high income taxes, such as California or New York, making the effective return even more appealing.