T-Bill
Short-term U.S. Treasury debt maturing in 4, 8, 13, 26, or 52 weeks, sold at a discount to face value rather than paying coupon interest.
Discount Yield = (Face Value − Purchase Price) / Face Value × (360 / Days to Maturity)
A Treasury Bill (T-Bill) is a zero-coupon instrument — it pays no periodic interest. Instead, it is issued at a price below its $1,000 face value; the difference between the purchase price and par is the investor's return.
T-Bills are the closest proxy for the risk-free rate in the short end of the yield curve and are the primary instrument the Fed influences via its fed funds rate policy. Money market funds, corporate cash managers, and foreign central banks hold T-Bills as liquid, near-zero-risk reserves.
In a risk-off environment, T-Bill yields can compress dramatically as demand surges for safety and liquidity.
On the desk
A 26-week T-Bill is auctioned at $98.00 per $100 face value. At maturity you receive $100, earning $2 — an annualized yield of approximately 4.08%.