Benefits of T-Bills

733 Words3 Pages
The US Treasury occasionally issues T-bills to raise money. It can also buy T-bills to pull money out of the economy. T-bills are therefore an instrument of monetary policy. A "muni" is a municipal bond, issued by a municipality (typically a city). They are another form of fixed income investment, but are unrelated to T-bills otherwise. They are not an instrument of monetary policy and are not backed by the credit of the US Treasury.
There are two considerations when determining whether or not to invest in a debt product. These are the rate of return and the credit quality of the issuer. The credit quality of the US Treasury is very high, because the Treasury prints money. Thus, the holder of a T-bill knows for certain that the face value will be paid. The only question for the holder, then, is with respect to the real value of that payment. T-bills are a safe way to earn a small interest rate, and in that respect are often better than holding cash. Unless the financial institution is paying a higher rate on its accounts than the T-bill rate, cash will have a lower real return than a T-bill. However, this is possible, if the bank intends to reinvest that money at a higher rate, say in loans to consumers or small businesses. The bank might in that case offer a higher real rate of return than T-bills in order to entice customers to make deposits.
One of the major benefits of T-bills is that they have a very liquid market, and that they are typically short-term instruments.
Get Access