Short-Term U.S. Treasury Note

Short-term U.S. Treasury (T-bills) based mutual funds and ETFs invest primarily (more... Short-term U.S. Treasury (T-bills) based mutual funds and ETFs invest primarily (more than 90% of their assets) in U.S. government debt with typical maturities ranging from a few days to 52 weeks. Individual T-bills, usually used for different government services and programs requiring funding in the near future, are sold by the U.S. Department of the Treasury at a discount to the par (face) value, which is paid back at maturity, helping investors earn a guaranteed interest. Interest income is subject to federal income taxes, but exempt from state and local income taxes. T-bills are generally regarded as safe investments, in the sense that investors are confident the government will not default on either its interest or principal obligations. For this reason, compared to other similarly structured debt securities, T-bills always have better ratings from credit rating agencies and tend to be a core component of conservative fixed-income portfolios. Due to their safety net, T-bills generally yield less than riskier securities (such as investment-grade corporate debt and high-yield corporate debt), but an investor’s principal amount remains more secure. Typically, investors purchasing T-bills often believe that interest rates will fall in the near future, as this will tend to increase the market value of their bond holdings (given the inverse relationship between interest rates and bond prices). However, a rising rate environment can increase the interest rate risk for these securities whose market value can fall. That said, T-bills are not as sensitive to changes in interest rates as intermediate-term treasury notes and long-term treasury bonds. This makes T-bills ideal for investors looking to earn higher risk-free income, compared to traditional savings accounts, in the near future. Last Updated: 12/03/2024 View more View less

Short-term U.S. Treasury (T-bills) based mutual funds and ETFs invest primarily (more than 90% of their assets) in U.S. government debt with typical maturities ranging from a few days to 52 weeks. Individual... Short-term U.S. Treasury (T-bills) based mutual funds and ETFs invest primarily (more than 90% of their assets) in U.S. government debt with typical maturities ranging from a few days to 52 weeks. Individual T-bills, usually used for different government services and programs requiring funding in the near future, are sold by the U.S. Department of the Treasury at a discount to the par (face) value, which is paid back at maturity, helping investors earn a guaranteed interest. Interest income is subject to federal income taxes, but exempt from state and local income taxes. T-bills are generally regarded as safe investments, in the sense that investors are confident the government will not default on either its interest or principal obligations. For this reason, compared to other similarly structured debt securities, T-bills always have better ratings from credit rating agencies and tend to be a core component of conservative fixed-income portfolios. Due to their safety net, T-bills generally yield less than riskier securities (such as investment-grade corporate debt and high-yield corporate debt), but an investor’s principal amount remains more secure. Typically, investors purchasing T-bills often believe that interest rates will fall in the near future, as this will tend to increase the market value of their bond holdings (given the inverse relationship between interest rates and bond prices). However, a rising rate environment can increase the interest rate risk for these securities whose market value can fall. That said, T-bills are not as sensitive to changes in interest rates as intermediate-term treasury notes and long-term treasury bonds. This makes T-bills ideal for investors looking to earn higher risk-free income, compared to traditional savings accounts, in the near future. Last Updated: 12/03/2024 View more View less