Difference Between Treasury Bills and Bonds

Treasury bills are debt papers issued by the government or corporations to raise money and have a tenure of less than one year and are generally issued for tenures of 91 days, 182 days, and 364 years. Bonds Bonds Bonds refer to the debt instruments issued by governments or corporations to acquire investors’ funds for a certain period.read more are also a debt instrumentTBonds refer to the debt instruments issued by governments or corporations to acquire investors’ funds for a certain period.read more issued by the government and corporations to raise debt. Tenure for corporate bonds is equal to or more than two years,

What is Treasury Bill?

  • Federal Reserve issues the T-bills issued by the government in the US and the Reserve bank of India in India. Worldwide they are issued by individual central banks.T-bills issued by the government are the safest instruments and do not have any default risk as the government backs them. T-bills are traded in the financial marketsThe Financial MarketsThe term “financial market” refers to the marketplace where activities such as the creation and trading of various financial assets such as bonds, stocks, commodities, currencies, and derivatives take place. It provides a platform for sellers and buyers to interact and trade at a price determined by market forces.read more and can be bought by anyone through various routes.In the more developed markets, it can trade actively by individuals also, but in lesser developed markets generally, they are bought through mutual funds. Return on the T-billsT-billsTreasury Bills (T-Bills) are investment vehicles that allow investors to lend money to the government.read more is tax-free for the investors.T-bills do not pay any coupon. They are floated as a zero-coupon bond Zero-coupon BondIn contrast to a typical coupon-bearing bond, a zero-coupon bond (also known as a Pure Discount Bond or Accrual Bond) is a bond that is issued at a discount to its par value and does not pay periodic interest. In other words, the annual implied interest payment is included into the face value of the bond, which is paid at maturity. As a result, this bond has only one return: the payment of the nominal value at maturity.read more to the investors at a discount to the face value. At the end of the maturity period, the investors get the interest from the instrument in the form of a return by receiving the face value from the bill.

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What are Bonds?

  • Bonds can be issued for various maturity, which include two years bonds, five years bonds, ten years bonds, or even 30 years.Bonds issued by the government are risk-free and do not have any default risk as the government backs them.Bonds issued by the corporate have default risk. Government-issued bonds are tax-free instruments, but the corporate bondsCorporate BondsCorporate Bonds are fixed-income securities issued by companies that promise periodic fixed payments. These fixed payments are broken down into two parts: the coupon and the notional or face value.read more are not tax-free for investors.The bondholders receive investors as a return on investment in coupon payments, generally quarterly or semi-annually.

Treasury Bills vs. Bonds Infographics

Let’s see the top differences between treasury bills vs. bonds.

Key Differences

  • T-bills are debt instruments issuedDebt Instruments IssuedDebt instruments provide finance for the company’s growth, investments, and future planning and agree to repay the same within the stipulated time. Long-term instruments include debentures, bonds, GDRs from foreign investors. Short-term instruments include working capital loans, short-term loans.read more by the government or the corporate with a tenure of less than one year, with popular tenures being 91 days, 82 days, and 364 days. Bonds are debt instruments also issued by the government or corporate for tenure equal to or more than two years period.Bonds pay interest in the form of a coupon to the investors quarterly or semi-annually. T-bills do not pay any coupon. They are floated as a zero-coupon bond to the investors, issued at discounts, and the investors receive the face value at the end of the tenure, which is the return on their investment.T-bills have no default riskDefault RiskDefault risk is a form of risk that measures the likelihood of not fulfilling obligations, such as principal or interest repayment, and is determined mathematically based on prior commitments, financial conditions, market conditions, liquidity position, and current obligations, among other factors.read more, irrespective of whether they are issued by the government or by the corporate. Government bondsGovernment BondsA government bond is an investment vehicle that allows investors to lend money to the government in return for a steady interest income.read more are risk-free, but corporate bonds have a default. Several rating agencies like Moody’s and S&P rate corporate bonds so that the investors can make an informed decision regarding the risk involved for a particular bond.The interest rate on a T-bill is generally lesser than the interest rate for a bond as the tenure holding by the investor for the bond is higher, and the risk is higher.

Treasury Bills vs. Bonds Comparative Table

Conclusion

T-bills and bonds are debt instruments issued by the government or corporations to raise debt. Bonds and T-bills issued by the government are backed by the government and do not have any default risk. The interest on the T-bills is generally lower than the bonds as the risk and tenure for holding a T-bill are lower than that of a bond. When investors fear a recession, the yield curve inverts in rare situations. This is popularly known as the inverted yield curveInverted Yield CurveThe inverted Yield curve is a rare graph that depicts future financial disasters by demonstrating how long-term debt instruments will yield lower returns than short-term debt instruments. The great financial crisis of 2007 is a good example of it. read more.

This has been a guide to the Treasury Bills vs. Treasury Bonds. Here we discuss the top differences between treasury bills and treasury bonds along with infographics and a comparison table. You may also have a look at the following articles –

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