Treasury Bills: Risk-Free Investments, Why?

Treasury bills are considered to be a risk-free investment because they are backed by the US government. T-bills are short-term securities that mature in one year or less and are usually issued in denominations of $1,000. They are auctioned at or below their par value and investors are paid the par value of the security upon maturity. Because the government will always repay bondholders at par when they mature, these are considered to be risk-free assets.

Treasury bills are short-term securities that mature in one year or less

Treasury bills are considered to be risk-free assets because the US government will always repay bondholders at par when they mature. Since T-bills are paid at their par value over relatively short maturities and do not make regular interest rate payments, there is also virtually no interest rate risk while they are held. T-bills are thus a form of zero-coupon bond.

The risk-free rate is hypothetical, as every investment has some risk associated with it. However, Treasury bills are the closest investment to being risk-free. They are backed by the "full faith and credit" of the US government, which has never defaulted on a debt or missed a payment.

Anyone is free to buy T-bills at weekly Treasury auctions.

They are considered risk-free because the US government backs them

Treasury bills are considered to be risk-free investments because the US government backs them. T-bills are short-term securities that mature in one year or less, and are usually issued in denominations of $1,000. They are auctioned at or below their par value, and investors are paid the par value of the security upon maturity. Because the government will always repay bondholders at par when they mature, these are considered to be risk-free assets. Since T-bills are paid at their par value over relatively short maturities and do not make regular interest rate payments (coupons), there is also virtually no interest rate risk while they are held. T-bills are thus a form of zero-coupon bond.

The risk-free rate is hypothetical, as every investment has some risk associated with it. However, T-bills are the closest investment to being risk-free. They are considered to be risk-free assets because they have a certain future return and virtually no possibility of loss. Debt obligations issued by the US Department of the Treasury (bonds, notes, and especially T-bills) are considered to be risk-free because the "full faith and credit" of the US government backs them.

The United States government has never defaulted on a debt or missed a payment on a debt. You would have to envision the utter collapse of the government to find a scenario that would involve losing any of the principal invested in a T-bill. There is virtually zero risk that you will lose principal by investing in T-bills. There is a risk that you could have earned better money elsewhere. Investing decisions are always a trade-off between risk and reward.

They are paid at par value over short maturities

Treasury bills are considered to be risk-free investments because they are backed by the US government. T-bills are short-term securities that mature in one year or less and are usually issued in denominations of $1,000. They are auctioned at or below their par value, and investors are paid the par value of the security upon maturity. Because the government will always repay bondholders at par when they mature, these are considered to be risk-free assets. Since T-bills are paid at their par value over relatively short maturities and do not make regular interest rate payments (coupons), there is also virtually no interest rate risk while they are held. T-bills are thus a form of zero-coupon bond.

There is virtually no interest rate risk

T-bills are short-term securities that mature in one year or less. They are usually issued in denominations of $1,000 and are auctioned at or below their par value. Investors are paid the par value of the security upon maturity.

Because the government will always repay bondholders at par when they mature, these are considered to be risk-free assets. Since T-bills are paid at their par value over relatively short maturities and do not make regular interest rate payments (coupons), there is also virtually no interest rate risk while they are held. T-bills are thus a form of zero-coupon bond.

The risk-free rate is hypothetical, as every investment has some risk associated with it. Treasury bills are the closest investment to being risk-free.

T-bills are considered to be risk-free assets because they are backed by the "full faith and credit" of the US government. The United States government has never defaulted on a debt or missed a payment on a debt. You would have to envision the utter collapse of the government to find a scenario that would involve losing any of the principal invested in a T-bill. There is virtually zero risk that you will lose principal by investing in T-bills.

They are a form of zero-coupon bond

Treasury bills are considered to be a risk-free investment because they are backed by the US government. They are a form of zero-coupon bond, which means that they do not make regular interest rate payments. Instead, investors are paid the par value of the security upon maturity. T-bills are short-term securities that mature in one year or less and are usually issued in denominations of $1,000. They are auctioned at or below their par value, and because the government will always repay bondholders at par when they mature, they are considered to be risk-free.

Zero-coupon bonds are a type of bond that does not pay interest. Instead, they are sold at a deep discount to their face value, and the investor receives the full face value of the bond when it matures. This means that the investor earns a return on their investment without receiving any interest payments. Zero-coupon bonds are often considered to be a low-risk investment because there is no risk of default by the issuer. In the case of T-bills, the issuer is the US government, which has never defaulted on a debt or missed a payment.

T-bills are a popular choice for investors seeking a low-risk investment option. They are also a relatively liquid investment, as they can be bought and sold at weekly Treasury auctions. Additionally, T-bills are a good option for investors who want to avoid the interest rate risk associated with other types of bonds. Because T-bills do not pay interest, there is no risk that the interest rate will change during the holding period. This makes them a relatively stable investment option.

Overall, T-bills are considered to be a risk-free investment because they are a form of zero-coupon bond that is backed by the full faith and credit of the US government. While every investment has some risk associated with it, T-bills are about as close to risk-free as an investment can get.

Frequently asked questions