Treasury bills, also known as T-bills, are short-term bonds maturing in one year or less. They are sold at a discount to their face value or principal. The minimum purchase is £65. The investor receives the face value on maturity, and the effective interest is the difference between the price paid and the face value. Treasury bills are considered safe investments because they are issued and backed by the U.S. government.
Historical data on T-Bills can be obtained from multiple online sources. Some of these websites are listed in the Resources section, including the web portals of the U.S. Federal Reserve and its affiliated reserve banks; the St. Louis Fed's FRED (Federal Reserve Economic Data) database; and the U.S. Department of the Treasury's TreasuryDirect website. Historical yields and current rates are also available on nongovernmental websites, such as Yahoo! Finance, Bloomberg BusinessWeek and CNN Money.
Treasury Bills and the Federal Reserve
The Federal Reserve sets monetary policy by adjusting the federal funds rate, which influences other short-term rates, including T-bill rates. The historical T-bill charts for the four types of T-bills -- four-week, three-month, six-month and one-year -- are shown in Resources, along with a comparative chart of the three-month T-bill and the federal funds rate. The charts prove two things: one, the T-bill rates move in tandem with monetary policy; and two, the interest rates on the various short-term T-bills track one another very closely over time.
Treasury Bills and Corporate Bond Yields
A chart showing the historical relationship between the three-month T-Bill rates and corporate bond yields is included in Resources. Corporations often raise money by issuing bonds, which make periodic interest payments to the investors and return the principal on maturity. The bond yield is the interest paid divided by the market price, expressed as a percentage. Rating agencies, such as Moody's, rate bonds on the basis of their risk: AAA-rated bonds are considered low-risk, while BAA-rated bonds are higher risk. Investors are willing to accept lower interest rates on T-bills because of their risk-free nature. Corporate bond rates are higher because of the associated default risk, which is the risk that the issuer might be unable to make the interest payments or return the principal on maturity.
T-bills can be purchased directly through the TreasuryDirect website or through brokers and financial institutions. T-bills also can be purchased indirectly through money market and bond mutual funds that invest in government bonds. The interest paid on T-bills is exempt from state and local taxes but subject to federal taxes.
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