T Bill Explanation

Dave gives a good breakdown on what a T bill is, how it works, and why he doesn't invest in them.

QUESTION: Brandon wants Dave to explain T-bills and the rates on them.

ANSWER: It’s a treasury bill. It means the government, to handle all its freakish overspending, sells treasury bonds on the bond market. The rate that the government pays to a person who holds those bonds is the rate. Since the government is supposed to be one of the lowest possible risks in the world, then people are willing to loan them money at very low interest rates, which means those bonds have low rates. Typically, T-bill rates have more to do with the interest rate environment than it does with any risk you take by loaning money to the government.

When you hear that we are in debt to China, it doesn’t mean that we went over there and got a loan. It means we issued billions of dollars in bonds and China bought a bunch of them. I don’t invest in T-bills because I don’t want that low rate of return.

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