IN THE PAST TWO YEARS, yields in the Treasury market have risen notably, and short-term investments, such as Treasury bills, have been offering especially high yields. "With the Federal Reserve raising rates, high-quality bonds are now offering much higher yields," says Mike Mulach, senior analyst, fixed-income manager research for Morningstar. "You don't actually have to take on much risk today to get pretty attractive yields." Treasury bills, also known as T-bills, have maturity dates of one year or less and are "one of the safest products there is," says Ken Tumin, founder of Deposit Accounts.
How they work. T-bills work differently than longer-term fixed-income investments, which pay interest semiannually until maturity. You buy T-bills at a discount from the face value-known as the price before par. Your interest is the difference between the discounted price and the par value at maturity. For example, if you paid $960 for a $1,000 T-bill that matures in one year, you would earn $40 in interest, for a yield of 4%.
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