How Treasury Bills Generate Returns

Treasury bills, also known as T-bills, are short-term debt securities sold by the U.S. Treasury Department. T-bills are, in effect, a short-term loan to the government.

Unlike other Treasury-issued securities (like T-bonds and T-notes), T-bills don’t pay periodic interest rates. Instead, T-bills are auctioned by the government at a discount to their face value, and the total return is the spread between the size of that discount (the discount rate) and the face value at maturity.

In other words, the yield generated by a T-bill amounts to the difference between what you paid and the face value. When the T-bill matures, the government pays you the full face value of the bond, and you’re free to reinvest that money.

This might seem counterintuitive at first, but prices and yields move in opposite directions. To raise the yield on a T-bill, the Treasury must lower the price — thus increasing the spread between the auction price and the face value.

Conversely, when the demand for T-bills is high (for example, in times of economic uncertainty), the price increases and the yield goes down.

T-bills are auctioned weekly in $100 increments by the U.S. Department of the Treasury, with the standard terms (4, 6, 8, 13, 17, 26 and 52 weeks) sold at varying intervals. T-bills can also be bought and sold on the secondary market.

The auction price determines the yield, which can be expressed on an annualized basis as the coupon discount rate. So far in 2025, the coupon discount rate for a four-week T-bill has ranged from 4.08% to 4.34%, much higher than a standard savings account, but slightly lower than some high-yield savings accounts.