Treasury Bills vs Bonds

Difference Between Treasury Bills and Bonds

Treasury bills are debt instruments that are issued by the central bank on behalf of the government with tenure that is less than a year and these have negligible chances of default risk while Bonds are issued for a period more than or equal to two years and these can either be default of risk free depending on its type.

Treasury bills are debt papers issued by the government or corporations in order 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. Whereas Bonds Bonds A bond is financial instrument that denotes the debt owed by the issuer to the bondholder. Issuer is liable to pay the coupon (an interest) on the same. These are also negotiable and the interest can be paid monthly, quarterly, half-yearly or even annually whichever is agreed mutually.read moreare also a debt instrumentTA bond is financial instrument that denotes the debt owed by the issuer to the bondholder. Issuer is liable to pay the coupon (an interest) on the same. These are also negotiable and the interest can be paid monthly, quarterly, half-yearly or even annually whichever is agreed mutually.read more issued by the government and corporations in order to raise debt. Tenure for corporate bonds is equal to or more than 2 years,

What is Treasury Bill?

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What are Bonds?

  • Bonds can be issued for various maturity, which includes 2 years bonds, 5 years bonds, 10 years bonds, or even 30 years bonds.
  • Bonds issued by the government are risk-free and do not have any default risk as they are backed by the government.
  • Bonds issued by the corporate have default risk. Government-issued bonds are the tax-free instrument, but the corporate bonds are not tax-free for the investors.
  • The bondholders receive investors as a return on investment in the form of coupon payment, generally quarterly or semi-annually.

Treasury Bills vs. Bonds Infographics

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

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Key Differences

Treasury Bills vs. Bonds Comparative Table

BasisTreasury BillsBonds
DefinitionTreasury bills are debt papers issued by the government or corporate in order to raise money. T-Bills have a tenure of less than one year.Bonds are also debt instruments issued by government and corporate in order to raise debt. Tenure for corporate bonds is equal to or more than 2 years.
TenureT-Bills have the tenure of less than one year and are generally issued for tenures of 91 days, 182 days, and 364 years. These three maturity periods are the more popular ones though T-bills are issued for other tenures as well.Bonds are issued for tenure for more than two years. Generally, bonds are issued as 2 years bond, 5 years bond 10 years bond, and also 30 years bond.
Coupon rateCoupon RateThe coupon rate is the ROI (rate of interest) paid on the bond's face value by the bond's issuers. It determines the repayment amount made by GIS (guaranteed income security). Coupon Rate = Annualized Interest Payment / Par Value of Bond * 100%read moreT-bills do not pay any coupon. They are floated as a zero-coupon bond 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 return by receiving the face value from the bill.Bonds pay their investors to interest in holding the bond in the form of coupon payments; generally, the coupon is paid quarterly or semi-annually to the investors.
Implication of taxIn the case of T-bills, whether it is issued by the government or corporate, there is no tax to be paid by the investors.Government-issued bonds are the tax-free instrument, but the corporate bonds are not tax-free for the investors.
Default riskT-bills have no default risk irrespective of the fact that whether they are issued by the government or by the corporate.Bonds issued by the government are risk-free and do not have any default risk as they are backed by the government. Bonds issued by the corporate have default risk.

Conclusion

Both T-bills and bonds are debt instruments issued by the government or corporate in order to raise debt. The interest on the T-bills is generally lower than the bonds as the risk and tenure for holding a T-bill is lower than that of a bond. In rare situations, when investors fear a recession, the yield curve inverts. 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. Bonds and T-bills issued by the government are backed by the government and do not have any default risk.

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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 comparison table. You may also have a look at the following articles –

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