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Difference Between Treasury Bills and Treasury Bonds

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Comparison Table: Treasury Bills vs Treasury Bonds (Features, Interest & Maturity)

Understanding the difference between Treasury bills and Treasury bonds is vital for Commerce students. These government-issued securities act as safe investment options and are frequently tested in school and competitive exams. This topic will help you answer questions related to financial markets, investment strategies, and how governments manage funds for various needs.


 
Feature Treasury Bills (T-Bills) Treasury Bonds (T-Bonds)
Issuer Government Government
Nature Short-term debt instrument Long-term debt instrument
Maturity Period Up to 1 year (mostly 91, 182, or 364 days in India) 10 to 30 years (mainly 20 or 30 years)
Interest Payment No periodic interest; issued at a discount, redeemed at face value Interest paid every six months (semi-annually)
Purpose Fund short-term government needs Fund long-term projects
Market Type Money market Capital market
Risk Very low (government-backed) Very low (government-backed)
Example in India 91-day T-bill, 364-day T-bill 10-year or 20-year Government of India Bond

Difference Between Treasury Bills and Treasury Bonds

The difference between Treasury bills and Treasury bonds lies mainly in their duration and interest payments. Understanding these differences helps students and investors choose the most suitable government security according to their financial objectives.


What are Treasury Bills?

Treasury bills, or T-bills, are short-term government securities. They mature within one year and do not offer regular interest payments. Instead, they are sold at a price lower than their face value, and investors receive the full face value on maturity.


  • Issued for periods: 91, 182, and 364 days (in India).
  • No periodic interest (zero-coupon).
  • Used for funding short-term government requirements.
  • Low risk and highly liquid; can be traded on the money market.

What are Treasury Bonds?

Treasury bonds, or T-bonds, are long-term government debt securities with maturities from 10 to 30 years. They pay a fixed rate of interest every six months until maturity, after which the face value is returned to the investor.


  • Maturity ranges between 10 to 30 years (mostly 20 or 30 years).
  • Interest paid semi-annually.
  • Suited for long-term government funding needs.
  • Low risk but exposed to interest rate changes when traded on the capital market.

Tabular Comparison: Treasury Bills vs Treasury Bonds

Criteria Treasury Bills Treasury Bonds
Nature Short-term Long-term
Maturity Up to 1 year 10–30 years
Interest Payment No regular interest; gains by buying at discount Interest paid every 6 months
Market Money market Capital market
Purpose Short-term funding Long-term projects
Typical Buyer Banks, companies, individuals (seeking liquidity) Long-term investors, pension funds
Risk Very low Very low (but interest rate sensitive)

Key Differences Explained

Treasury bills are best for investors needing a safe place for funds for less than a year. They are very liquid and secure. Treasury bonds work well for investors planning for long-term needs and seeking regular income from interest payments. Both carry almost no default risk since they are backed by the government, but T-bonds may have more price fluctuation if sold before maturity.


Treasury Bills and Bonds in India

In India, the Reserve Bank of India (RBI) issues T-bills in 91, 182, and 364-day tenures. Investors include banks, corporations, and individuals. Treasury bonds (often called Government of India Bonds or G-Secs) are issued for longer periods, like 10, 20, or 30 years, and pay fixed interest every six months. These securities are core parts of the Indian financial market ecosystem. For more on this topic, explore Financial Market and Government Deficit.


How to Invest in Treasury Bills and Treasury Bonds

  • Choose a broker, bank, or directly use RBI’s Retail Direct platform.
  • Select the security (T-bill or bond) and tenor as per your needs.
  • Place a bid or invest via the non-competitive bidding option for smaller applications.
  • Make payment and receive the securities in your designated demat account.
  • You can sell them anytime before maturity on secondary markets if liquidity is required.

When to Choose Treasury Bills vs Treasury Bonds?

If you need to park money securely for up to one year, Treasury bills are a strong choice. For building long-term wealth or generating regular income over decades, Treasury bonds provide stability and predictable returns. The decision should match your investment horizon and financial goals. Both options are strongly supported by Vedantu to boost your Commerce understanding and exam readiness.


Related Concepts and Further Learning


In summary, the difference between Treasury bills and Treasury bonds is crucial for commerce learning and investment decisions. T-bills offer short-term, no-interest, highly liquid safety, while T-bonds provide long-term, interest-paying security. Knowing when to use each helps in exams, business, and smart investing. For deeper study, regularly explore related Vedantu resources.

FAQs on Difference Between Treasury Bills and Treasury Bonds

1. What is the main difference between Treasury bills and Treasury bonds?

Treasury bills (T-bills) are short-term government securities maturing in one year or less, issued at a discount, and paying no periodic interest. Treasury bonds (T-bonds), conversely, are long-term debt instruments with maturities of 20-30 years, paying interest semi-annually. This key difference in maturity significantly impacts investment strategies and risk profiles.

2. Which is better: Treasury bills or Treasury bonds?

The choice between T-bills and T-bonds depends entirely on your investment goals. T-bills are ideal for short-term, liquid investments where capital preservation is paramount. T-bonds, however, better suit long-term investors seeking regular interest income and are less susceptible to short-term market fluctuations.

3. What is the difference between T-bills and bonds in India?

In India, Treasury bills and Treasury bonds, issued by the Reserve Bank of India (RBI), function similarly to their US counterparts. T-bills are short-term instruments, while T-bonds represent long-term government debt. The key differences lie in maturity periods and interest payment frequencies, impacting investment returns and risk tolerance.

4. How are Treasury bills and bonds taxed in India?

Interest earned on Indian Treasury bills and bonds is considered income from other sources and is taxable according to the prevailing Indian tax laws. Tax implications should be carefully considered when making investment decisions.

5. Can I sell Treasury bills and bonds before maturity?

Yes, you can sell Treasury bills and bonds before their maturity date. However, their market value fluctuates based on prevailing interest rates. Selling before maturity might result in a gain or loss compared to the face value at maturity. Market liquidity varies depending on the specific instrument.

6. Why is Warren Buffett buying Treasury bills?

Warren Buffett, renowned for his value investing, often invests in Treasury bills due to their exceptional safety and liquidity. During periods of market uncertainty, T-bills offer a safe haven for preserving capital, making them an attractive short-term investment option for even seasoned investors.

7. What is the difference between a Treasury bill and a Treasury certificate?

While both are government securities, Treasury bills (T-bills) are short-term (less than a year), while Treasury certificates are a less common type of government debt with varying maturities. T-bills are generally more liquid and widely traded in the market.

8. What is the main difference between treasury bonds, treasury notes, and treasury bills?

The primary difference lies in their maturity periods: Treasury bills (T-bills) are short-term (less than a year), Treasury notes (T-notes) have intermediate maturities (2-10 years), and Treasury bonds (T-bonds) are long-term (20-30 years). Their interest payment schedules also differ accordingly.

9. Which is better, Treasury bonds or treasury bills?

The 'better' option depends on your investment timeline and risk tolerance. Treasury bills (T-bills) offer low risk and high liquidity, ideal for short-term needs. Treasury bonds (T-bonds) provide higher potential returns over the long term but carry more interest rate risk.

10. What are the risks and returns of Treasury bills and bonds?

Treasury bills (T-bills) carry minimal risk of default, offering relatively low returns due to their short maturity. Treasury bonds (T-bonds) offer higher potential returns but face higher interest rate risk due to their longer maturity. Both are considered relatively safe investments compared to corporate bonds.

11. How to buy Treasury bills and bonds?

You can purchase Treasury bills and bonds through various channels, including government websites (like TreasuryDirect in the US) or through financial intermediaries like banks and brokerage firms. The process might differ depending on your location and the type of security.