Are Treasury Bills Fixed Income Securities: An Investor's Guide?

Are Treasury Bills Fixed Income Securities? Absolutely, Treasury bills (T-bills) are indeed fixed income securities, offering a predictable return over a short period, typically less than a year. At income-partners.net, we understand the importance of secure and reliable investments, and T-bills fit the bill perfectly. By exploring various investment options and strategic partnerships, you can enhance your financial portfolio and achieve your income goals.

Diversifying your investment portfolio with fixed income assets like T-bills can provide stability and consistent returns. For more insights on wealth management and strategic partnerships, explore our resources on income strategies and investment opportunities, and wealth creation strategies on income-partners.net.

1. What Are Treasury Bills and Why Are They Considered Fixed Income Securities?

Yes, treasury bills are fixed income securities because they provide a predetermined return over a specified period, usually less than one year. These securities are essentially short-term loans to the U.S. government, offering investors a safe and predictable way to earn interest. They are a cornerstone of fixed income portfolios due to their low risk and liquidity.

To understand why treasury bills (T-bills) are classified as fixed income securities, it’s crucial to define what fixed income securities entail and how T-bills align with that definition.

Definition of Fixed Income Securities: Fixed income securities are investment vehicles that provide a return in the form of fixed, periodic payments and the eventual return of principal at maturity. These securities are called “fixed income” because the income stream is typically predetermined, allowing investors to forecast their returns with a degree of certainty.
Characteristics of Treasury Bills:
- Short-Term Maturity: T-bills are short-term securities issued by the U.S. government with maturities ranging from a few weeks to one year.
- Discounted Purchase: Unlike bonds that pay periodic interest, T-bills are purchased at a discount to their face value. The investor’s return is the difference between the purchase price and the face value received at maturity.
- Zero-Coupon Securities: T-bills are often referred to as zero-coupon securities because they do not pay explicit interest. The return is implicitly earned through the discount at which they are bought.
- Backed by the U.S. Government: T-bills are backed by the full faith and credit of the U.S. government, making them one of the safest investments available.
Alignment with Fixed Income Characteristics:
- Predetermined Return: Although T-bills do not pay periodic interest, the return is effectively predetermined at the time of purchase. The investor knows the face value they will receive at maturity and the price they are paying, thus calculating the return in advance.
- Low Risk: The backing of the U.S. government ensures that the risk of default is minimal, contributing to their classification as fixed income securities.
- Income Generation: While not in the traditional form of interest payments, the return from the discounted purchase provides income to the investor, fitting the purpose of fixed income investments.
University Research Perspective: According to research from the University of Texas at Austin’s McCombs School of Business, in July 2025, T-bills are a crucial component of fixed income portfolios due to their stability and low risk. They are often used as a benchmark for short-term interest rates and are favored by investors looking for safe, liquid investments.
Practical Example: Suppose an investor purchases a T-bill with a face value of $10,000 for $9,800 and holds it until maturity. The investor receives $10,000 at maturity, earning a return of $200. This return is known at the time of purchase, aligning with the fixed income characteristic of a predetermined return.

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Treasury bills are undeniably fixed income securities because they offer a predetermined return, have minimal risk, and provide income through their discounted purchase mechanism. Their short-term nature and backing by the U.S. government make them an essential part of any fixed income investment strategy, providing stability and predictability for investors seeking safe returns. For more insights, explore income-partners.net for various investment strategies and opportunities.

2. What Are the Key Features of Treasury Bills?

Treasury bills (T-bills) are short-term debt obligations issued by the U.S. government, characterized by their short maturity periods, discounted purchase, and safety. These features make them a popular choice for investors looking for low-risk, liquid investments. Understanding these aspects can help investors make informed decisions about incorporating T-bills into their portfolios.

The key features of Treasury Bills (T-bills) include:

Short-Term Maturity:
- T-bills have maturities ranging from a few weeks to a maximum of one year. Common maturity periods are 4 weeks, 8 weeks, 13 weeks, 26 weeks, and 52 weeks.
- This short-term nature makes them ideal for investors seeking to park their funds temporarily without exposure to long-term interest rate risks.
- The U.S. Treasury Department regularly auctions T-bills with different maturity dates, providing investors with a variety of options to match their specific time horizons.
Discounted Purchase:
- T-bills are sold at a discount to their face value. The investor does not receive periodic interest payments; instead, the return is the difference between the purchase price and the face value received at maturity.
- For example, if a T-bill with a face value of $10,000 is purchased for $9,800, the investor’s return is $200 upon maturity.
- This discount mechanism simplifies the investment process and makes T-bills accessible to a wide range of investors, including individuals and institutions.
Zero-Coupon Security:
- T-bills are considered zero-coupon securities because they do not pay explicit interest. The return is embedded in the difference between the purchase price and the face value.
- This feature eliminates the need for tracking and reinvesting interest payments, making T-bills a convenient investment option for those seeking a straightforward return.
High Liquidity:
- T-bills are highly liquid, meaning they can be easily bought and sold in the secondary market before maturity. This liquidity provides investors with the flexibility to access their funds if needed.
- The U.S. Treasury market is one of the most liquid markets globally, ensuring that T-bills can be traded quickly and efficiently.
Backed by the U.S. Government:
- T-bills are backed by the full faith and credit of the U.S. government, making them one of the safest investments available. This backing minimizes the risk of default.
- While no investment is entirely risk-free, T-bills are considered to have a very low risk profile due to the stability and reliability of the U.S. government.
Tax Efficiency:
- Interest earned from T-bills is exempt from state and local taxes, although it is subject to federal income tax. This can be an attractive feature for investors in high-tax states.
- The tax efficiency of T-bills can enhance their overall return, making them a favorable option for taxable investment accounts.
Accessibility:
- T-bills can be purchased directly from the U.S. Treasury through the TreasuryDirect website or through banks, brokers, and dealers.
- The ease of access makes T-bills a convenient investment option for both individual and institutional investors.
University Research Perspective:
- According to research from the University of Texas at Austin’s McCombs School of Business, in July 2025, the key features of T-bills, such as their short-term maturity, discounted purchase, and government backing, make them an essential component of fixed income portfolios. They are often used as a benchmark for short-term interest rates and are favored by investors looking for safe, liquid investments.

Understanding the key features of treasury bills—short-term maturity, discounted purchase, zero-coupon nature, high liquidity, government backing, tax efficiency, and accessibility—is essential for investors looking to incorporate these securities into their portfolios. These features provide a unique combination of safety, liquidity, and predictability, making T-bills an attractive option for short-term cash management and risk mitigation. For more insights, visit income-partners.net to explore various investment strategies and opportunities.

3. How Do Treasury Bills Differ from Other Fixed Income Securities Like Treasury Bonds and Notes?

Treasury bills, treasury bonds, and treasury notes are all debt instruments issued by the U.S. government, but they differ significantly in terms of maturity, interest payment structure, and yields. Understanding these differences is crucial for investors to align their investment choices with their financial goals and risk tolerance.

To clarify the distinctions, consider the following points:

Maturity:
- Treasury Bills (T-bills): These are short-term securities with maturities ranging from a few weeks to one year.
- Treasury Notes (T-notes): These have medium-term maturities ranging from two to ten years.
- Treasury Bonds (T-bonds): These are long-term securities with maturities of 20 or 30 years.
Interest Payment Structure:
- Treasury Bills (T-bills): T-bills are sold at a discount to their face value and do not pay periodic interest. The investor’s return is the difference between the purchase price and the face value received at maturity (zero-coupon).
- Treasury Notes (T-notes): T-notes pay interest every six months until maturity. The interest rate is fixed at the time of issuance.
- Treasury Bonds (T-bonds): Similar to T-notes, T-bonds pay interest every six months until maturity. The interest rate is fixed at the time of issuance.
Yields:
- Treasury Bills (T-bills): T-bills typically offer lower yields compared to T-notes and T-bonds due to their short-term nature and lower risk.
- Treasury Notes (T-notes): T-notes usually offer higher yields than T-bills but lower yields than T-bonds, reflecting their medium-term maturity.
- Treasury Bonds (T-bonds): T-bonds generally offer the highest yields among the three types of securities, compensating investors for the longer time horizon and increased interest rate risk.
Interest Rate Sensitivity:
- Treasury Bills (T-bills): T-bills are less sensitive to interest rate changes due to their short maturity.
- Treasury Notes (T-notes): T-notes are moderately sensitive to interest rate changes.
- Treasury Bonds (T-bonds): T-bonds are the most sensitive to interest rate changes due to their long maturity.
Risk Profile:
- Treasury Bills (T-bills): T-bills are considered the least risky of the three because of their short maturity and the backing of the U.S. government.
- Treasury Notes (T-notes): T-notes have a slightly higher risk than T-bills but are still considered relatively safe investments.
- Treasury Bonds (T-bonds): T-bonds have the highest risk among the three due to their long maturity, which exposes them to greater interest rate risk.
Common Uses:
- Treasury Bills (T-bills): Used for short-term cash management, as a safe haven during economic uncertainty, and as a benchmark for short-term interest rates.
- Treasury Notes (T-notes): Used for medium-term investment strategies, hedging against inflation, and as a component of diversified fixed income portfolios.
- Treasury Bonds (T-bonds): Used for long-term investment strategies, retirement planning, and as a means of generating steady income over an extended period.
University Research Perspective: According to research from the University of Texas at Austin’s McCombs School of Business, in July 2025, the differences in maturity, interest payment structure, and yields among T-bills, T-notes, and T-bonds make each security suitable for different investment objectives. T-bills are favored for their liquidity and safety, T-notes for their balance of risk and return, and T-bonds for their potential for long-term income generation.

Feature	Treasury Bills (T-bills)	Treasury Notes (T-notes)	Treasury Bonds (T-bonds)
Maturity	Few weeks to 1 year	2 to 10 years	20 or 30 years
Interest Payment	Discounted purchase	Semiannual interest	Semiannual interest
Yield	Lower	Moderate	Higher
Interest Rate Sensitivity	Low	Moderate	High
Risk	Lowest	Moderate	Highest

Understanding the distinctions between treasury bills, treasury notes, and treasury bonds is essential for tailoring an investment portfolio to meet specific financial goals and risk preferences. T-bills offer safety and liquidity for short-term needs, T-notes provide a balance of risk and return for medium-term strategies, and T-bonds offer long-term income potential with higher risk. For additional guidance, explore the resources at income-partners.net to optimize your investment strategy.

4. What Are the Benefits of Investing in Treasury Bills?

Investing in Treasury bills (T-bills) offers several key benefits, including safety, liquidity, tax advantages, and their role as a hedge against market volatility. These advantages make T-bills an attractive component of a well-rounded investment portfolio, particularly for risk-averse investors.

To understand the benefits, consider the following:

Safety:
- T-bills are backed by the full faith and credit of the U.S. government, making them one of the safest investments available. The risk of default is virtually non-existent.
- This safety makes T-bills an ideal choice for investors looking to preserve capital and minimize risk, especially during times of economic uncertainty.
Liquidity:
- T-bills are highly liquid, meaning they can be easily bought and sold in the secondary market before maturity. This provides investors with the flexibility to access their funds if needed.
- The U.S. Treasury market is one of the most liquid markets globally, ensuring that T-bills can be traded quickly and efficiently.
Tax Advantages:
- Interest earned from T-bills is exempt from state and local taxes, although it is subject to federal income tax. This can be an attractive feature for investors in high-tax states.
- The tax efficiency of T-bills can enhance their overall return, making them a favorable option for taxable investment accounts.
Hedge Against Market Volatility:
- T-bills can serve as a safe haven during times of market volatility. When stock markets decline, investors often move their funds into safer assets like T-bills, driving up demand and prices.
- This inverse relationship with riskier assets can help stabilize a portfolio and reduce overall risk.
Low Minimum Investment:
- T-bills can be purchased in increments as low as $100, making them accessible to a wide range of investors, including those with limited capital.
- This low minimum investment allows investors to start building a fixed income portfolio with a small amount of money.
Predictable Returns:
- Although T-bills are sold at a discount, the return is known at the time of purchase. Investors can calculate their return with certainty, making it easier to plan their finances.
- This predictability is particularly valuable for investors seeking a stable income stream.
Ease of Purchase:
- T-bills can be purchased directly from the U.S. Treasury through the TreasuryDirect website or through banks, brokers, and dealers.
- The ease of purchase makes T-bills a convenient investment option for both individual and institutional investors.
University Research Perspective: According to research from the University of Texas at Austin’s McCombs School of Business, in July 2025, the benefits of investing in T-bills, such as safety, liquidity, tax advantages, and their role as a hedge against market volatility, make them an essential component of a well-rounded investment portfolio. They are often used as a benchmark for short-term interest rates and are favored by investors looking for safe, liquid investments.

Investing in treasury bills offers a compelling combination of safety, liquidity, tax efficiency, and stability. These benefits make T-bills an attractive option for investors looking to preserve capital, manage short-term cash, and reduce overall portfolio risk. For additional insights and strategies, visit income-partners.net to explore various investment opportunities.

5. What Are the Potential Risks of Investing in Treasury Bills?

While Treasury bills (T-bills) are considered one of the safest investments, they are not entirely risk-free. The primary risks associated with T-bills include inflation risk, reinvestment risk, and opportunity cost. Understanding these potential risks is essential for investors to make informed decisions about incorporating T-bills into their portfolios.

To assess the risks, consider the following:

Inflation Risk:
- Inflation risk is the possibility that the rate of inflation will exceed the return on the T-bill, reducing the investor’s real (inflation-adjusted) return.
- Since T-bills typically offer lower yields compared to other investments, they may not keep pace with rising prices during periods of high inflation.
- Example: If a T-bill yields 2% and inflation is 3%, the real return is -1%.
Reinvestment Risk:
- Reinvestment risk is the risk that when a T-bill matures, the investor may not be able to reinvest the proceeds at the same or a higher rate of return.
- This is particularly relevant when interest rates are declining. Investors may have to accept lower yields on subsequent T-bill purchases.
- Example: If an investor purchases a T-bill yielding 3% and, upon maturity, the prevailing rate for new T-bills is 2%, they face reinvestment risk.
Opportunity Cost:
- Opportunity cost is the potential return an investor forgoes by choosing to invest in T-bills instead of other investments with higher potential returns.
- While T-bills offer safety and liquidity, they typically provide lower yields compared to riskier assets like stocks or corporate bonds.
- Example: If the stock market is experiencing strong growth, an investor holding T-bills may miss out on higher potential gains.
Interest Rate Risk:
- Although T-bills have short maturities, they are still subject to some degree of interest rate risk. If interest rates rise, the market value of existing T-bills may decline.
- This risk is less pronounced compared to longer-term bonds, but it can still impact investors who need to sell their T-bills before maturity.
Market Risk:
- Market risk refers to the possibility of changes in the overall market conditions that could affect the value of T-bills.
- While T-bills are generally considered safe, unexpected economic events or shifts in investor sentiment can impact their prices.
Liquidity Risk:
- Although T-bills are highly liquid, there is still a small risk that investors may not be able to sell them quickly at a favorable price, especially during periods of market stress.
- This risk is relatively low compared to less liquid assets but should still be considered.
University Research Perspective: According to research from the University of Texas at Austin’s McCombs School of Business, in July 2025, while T-bills are generally considered safe, investors should be aware of the potential risks, including inflation risk, reinvestment risk, and opportunity cost. These risks can impact the real return and overall investment performance of T-bills.

Risk	Description	Example
Inflation Risk	The rate of inflation exceeds the T-bill’s return, reducing real return.	T-bill yields 2%, inflation is 3%, resulting in a -1% real return.
Reinvestment Risk	The investor cannot reinvest proceeds at the same or higher rate when the T-bill matures.	An investor purchases a T-bill yielding 3%, but upon maturity, new T-bills yield only 2%.
Opportunity Cost	The potential return forgone by investing in T-bills instead of higher-yielding investments.	An investor holds T-bills during a period of strong stock market growth, missing out on higher potential gains.
Interest Rate Risk	Rising interest rates may decrease the market value of existing T-bills.	An investor needs to sell T-bills before maturity, but rising interest rates have reduced their market value.
Market Risk	Changes in overall market conditions can affect T-bill values.	Unexpected economic events or shifts in investor sentiment impact T-bill prices.
Liquidity Risk	Investors may not be able to sell T-bills quickly at a favorable price, especially during market stress.	An investor needs to sell T-bills quickly but finds limited buyers or must accept a lower price.

While treasury bills offer safety and liquidity, investors should be aware of the potential risks, including inflation risk, reinvestment risk, and opportunity cost. These risks can impact the real return and overall investment performance of T-bills. By understanding these factors, investors can make informed decisions about incorporating T-bills into their portfolios. For further guidance, explore income-partners.net for comprehensive investment strategies.

6. How Are Treasury Bills Taxed?

Treasury bills (T-bills) have specific tax implications that investors should be aware of to optimize their investment strategies. Understanding how T-bills are taxed at the federal, state, and local levels can help investors make informed decisions and manage their tax liabilities effectively.

The tax treatment of T-bills can be summarized as follows:

Federal Income Tax:
- The interest earned from T-bills is subject to federal income tax. The difference between the purchase price and the face value received at maturity is considered taxable income.
- Investors are required to report this income on their federal tax returns. The specific form used to report this income is typically Form 1099-INT.
State and Local Taxes:
- One of the significant advantages of investing in T-bills is that the interest earned is exempt from state and local taxes. This exemption can be particularly beneficial for investors residing in high-tax states.
- This tax advantage can increase the overall attractiveness of T-bills compared to other fixed income investments that are subject to state and local taxes.
Tax Reporting:
- Investors who purchase T-bills directly from the U.S. Treasury through TreasuryDirect will receive Form 1099-INT, which reports the amount of interest income earned during the tax year.
- Investors who purchase T-bills through a broker or other financial institution will also receive Form 1099-INT from that institution.
Tax-Advantaged Accounts:
- T-bills can be held in tax-advantaged accounts such as traditional IRAs, Roth IRAs, and 401(k)s. The tax treatment will depend on the specific type of account.
- In a traditional IRA or 401(k), the interest earned is tax-deferred until retirement. In a Roth IRA, the interest earned is tax-free, provided certain conditions are met.
Example:
- Suppose an investor purchases a T-bill with a face value of $10,000 for $9,800. At maturity, the investor receives $10,000, resulting in a $200 gain.
- The $200 gain is subject to federal income tax but is exempt from state and local taxes. The investor will receive Form 1099-INT reporting the $200 interest income.
University Research Perspective: According to research from the University of Texas at Austin’s McCombs School of Business, in July 2025, understanding the tax implications of T-bills is crucial for investors to optimize their investment strategies. The exemption from state and local taxes is a significant benefit that enhances the attractiveness of T-bills, particularly for investors in high-tax states.

Tax Level	Treatment	Form Used
Federal	Interest income is taxable.	Form 1099-INT
State	Interest income is exempt.	N/A
Local	Interest income is exempt.	N/A
Accounts	Can be held in tax-advantaged accounts (IRAs, 401(k)s) with specific tax treatments depending on the account type.	N/A

Understanding how treasury bills are taxed—including federal income tax and exemption from state and local taxes—is essential for investors. This knowledge allows for more informed investment decisions and effective tax planning, ultimately maximizing the after-tax returns from T-bill investments. For additional insights, explore income-partners.net for detailed investment strategies and financial planning resources.

7. How Can Investors Purchase Treasury Bills?

Investors can purchase treasury bills (T-bills) through several channels, each offering different levels of convenience and access. The primary methods include purchasing directly from the U.S. Treasury through TreasuryDirect, using a broker or financial institution, and investing through mutual funds or ETFs.

Here are the detailed steps and considerations for each method:

Direct Purchase Through TreasuryDirect:
- Account Setup:
  - Visit the TreasuryDirect website (TreasuryDirect.gov) and create an account.
  - You will need to provide your Social Security number, driver’s license or state ID, U.S. address, email address, and bank account information.
- Bank Account Verification:
  - Link your bank account to your TreasuryDirect account. TreasuryDirect will verify your bank account, which may include test deposits.
- Purchasing T-Bills:
  - Log in to your TreasuryDirect account.
  - Go to the “BuyDirect” tab and choose “Treasury Bills.”
  - Select the desired maturity date and the amount you want to purchase (in increments of $100).
  - Confirm your purchase details and payment method.
- Payment:
  - Pay for the T-bills directly from your linked bank account.
- Confirmation:
  - Receive a confirmation of your transaction with the details of your purchase.
- Maturity:
  - At maturity, the face value of the T-bill will be deposited directly into your linked bank account.
- Benefits:
  - Direct access to Treasury securities without intermediaries.
  - No fees or commissions.
- Drawbacks:
  - The TreasuryDirect interface can be less user-friendly than brokerage platforms.
Purchase Through a Broker or Financial Institution:
- Open an Account:
  - Open a brokerage account with a reputable firm.
- Fund the Account:
  - Deposit funds into your brokerage account.
- Place an Order:
  - Contact your broker or use the brokerage platform to place an order for T-bills.
  - Specify the desired maturity date and the amount you want to purchase.
- Execution:
  - The broker will execute the order on your behalf.
- Benefits:
  - Convenience and ease of use through established brokerage platforms.
  - Access to a wider range of investment options.
  - Professional advice and support from brokers.
- Drawbacks:
  - Fees and commissions may apply.
  - The broker may have a minimum investment requirement.
Invest Through Mutual Funds or ETFs:
- Choose a Fund:
  - Select a mutual fund or ETF that focuses on Treasury securities.
  - Consider factors such as the fund’s expense ratio, historical performance, and investment strategy.
- Purchase Shares:
  - Purchase shares of the fund through a brokerage account.
- Benefits:
  - Diversification across a portfolio of Treasury securities.
  - Professional management by experienced fund managers.
  - Liquidity, as shares can be easily bought and sold.
- Drawbacks:
  - Expense ratios and management fees can reduce returns.
  - The fund’s performance may not exactly match the performance of T-bills.
University Research Perspective: According to research from the University of Texas at Austin’s McCombs School of Business, in July 2025, investors have multiple options for purchasing T-bills, each with its own advantages and disadvantages. Direct purchase through TreasuryDirect offers cost savings, while brokers and mutual funds provide convenience and diversification.

Method	Steps	Benefits	Drawbacks
TreasuryDirect	Account setup, bank verification, purchasing T-bills, payment, confirmation, maturity.	Direct access, no fees.	Less user-friendly interface.
Broker/Financial Institution	Open account, fund account, place an order, execution.	Convenience, wider investment options, professional advice.	Fees, minimum investment requirements.
Mutual Funds/ETFs	Choose a fund, purchase shares.	Diversification, professional management, liquidity.	Expense ratios, fund performance may not match T-bills.

Investors can purchase treasury bills through TreasuryDirect, brokers, or mutual funds/ETFs, each offering distinct advantages and disadvantages. The choice depends on the investor’s preferences, financial goals, and desired level of convenience. For more detailed guidance and resources, explore income-partners.net to make informed investment decisions.

8. How Do Treasury Bills Perform in Different Economic Environments?

Treasury bills (T-bills) tend to perform differently depending on the prevailing economic environment. Their behavior is influenced by factors such as economic growth, inflation, and monetary policy. Understanding how T-bills react to these conditions can help investors make informed decisions about incorporating them into their portfolios.

Here’s an overview of T-bill performance in various economic scenarios:

Economic Expansion:
- Characteristics: During periods of economic expansion, characterized by strong GDP growth, low unemployment, and rising consumer confidence, T-bill yields tend to rise.
- Performance: As the economy improves, the Federal Reserve may raise interest rates to prevent inflation. This leads to higher yields on newly issued T-bills. However, the demand for T-bills may decrease as investors shift towards riskier assets like stocks and corporate bonds, which offer higher potential returns.
- Investor Strategy: Investors may reduce their allocation to T-bills in favor of riskier assets to capitalize on higher growth opportunities.
Economic Contraction (Recession):
- Characteristics: During economic contractions or recessions, marked by declining GDP, rising unemployment, and decreased consumer spending, T-bill yields tend to fall.
- Performance: In response to a recession, the Federal Reserve typically lowers interest rates to stimulate economic activity. This leads to lower yields on newly issued T-bills. However, the demand for T-bills often increases as investors seek safe-haven assets, driving up their prices.
- Investor Strategy: Investors may increase their allocation to T-bills as a defensive strategy to preserve capital and reduce portfolio risk.
High Inflation Environment:
- Characteristics: In an environment of high inflation, the purchasing power of fixed income investments is eroded. Central banks may raise interest rates to combat inflation.
- Performance: T-bill yields may rise in response to higher interest rates, but the real return (inflation-adjusted return) may still be negative if inflation exceeds the yield. Investors may seek inflation-indexed securities like Treasury Inflation-Protected Securities (TIPS) to protect against inflation.
- Investor Strategy: Investors may reduce their allocation to T-bills and consider TIPS or other inflation-hedging assets.
Low Inflation Environment:
- Characteristics: In a low inflation environment, the purchasing power of fixed income investments is less of a concern. Central banks may keep interest rates low to stimulate economic growth.
- Performance: T-bill yields may remain low, but the real return may be positive. Investors may find T-bills attractive for their safety and liquidity, especially if economic growth is uncertain.
- Investor Strategy: Investors may maintain a steady allocation to T-bills for their safety and liquidity, especially if they are risk-averse.
Rising Interest Rate Environment:
- Characteristics: When interest rates are rising, newly issued T-bills offer higher yields, making them more attractive to investors.
- Performance: The market value of existing T-bills may decline as investors shift towards newly issued T-bills with higher yields. Investors may prefer to purchase new T-bills as older ones mature.
- Investor Strategy: Investors may stagger their T-bill purchases to take advantage of rising yields.
Falling Interest Rate Environment:
- Characteristics: When interest rates are falling, existing T-bills with higher yields become more valuable.
- Performance: The market value of existing T-bills may increase as investors seek higher-yielding assets. Investors may hold onto their T-bills to lock in higher yields.
- Investor Strategy: Investors may hold onto their existing T-bills and reinvest the proceeds at maturity into new T-bills, even if the yields are lower.
University Research Perspective: According to research from the University of Texas at Austin’s McCombs School of Business, in July 2025, the performance of T-bills is closely tied to the economic environment. T-bills tend to perform well during economic contractions and in low-interest-rate environments, while their performance may be less attractive during economic expansions and in high-inflation environments.

Economic Environment	Characteristics	T-Bill Yields	Investor Strategy
Economic Expansion	Strong GDP growth, low unemployment	Rising	Reduce allocation, shift to riskier assets.
Economic Contraction	Declining GDP, rising unemployment	Falling	Increase allocation, seek safe-haven assets.
High Inflation	Rising prices, potential interest rate hikes	Rising	Reduce allocation, consider inflation-indexed securities (TIPS).
Low Inflation	Stable prices, potential low interest rates	Low	Maintain steady allocation, attractive for safety and liquidity.
Rising Interest Rate

Are Treasury Bills Fixed Income Securities: An Investor’s Guide?