All You Need To Know About Treasury Bills

When the government goes to the financial markets to raise capital, the government issues two types of debt instruments: treasury bills and government bonds. Treasury bills are issued when the government needs money in the short term. These bills are issued only by the central government and their interests are determined by market forces.

What are the maturities of short-term Treasury bonds?

The maximum expiration date for government bonds and T-bills is 364 days. Therefore, it is classified as a money market (the money market naturally trades funds for less than a year). Currently, government bonds are issued with three expiration dates: 91 days, 182 days, and 364 days. In 1997, the government also immediately issued a Treasury bill on the 14th.

When were Treasury short-term bonds introduced? Who Issues Treasury Short-Term Bonds and Who Can Buy?

Treasury short-term bonds were first issued in India in 1917. These are issued through regular auctions conducted by the Reserve Bank of India (RBI). Private trusts, institutions, and banks can purchase T-Bills. However, they are usually maintained by financial institutions. They play a very important role in financial markets beyond investment products. Banks hand over RBI Treasury bonds to make money on report trades. Similarly, it can maintain it to meet the requirements of the Statutory Liquid Ratio (SLR).

How do T-bills work?

Treasury short-term bonds are issued at a discount to their original value, so buyers get their original value at maturity. For example, a 100 rupee Treasury bond can be used for 95 rupees, but the buyer is paid 100 rupees at maturity. The yield of Treasury Treasury bonds depends on the liquidity position of the economy. In the event of a liquidity crisis, returns are high and vice versa.

Are Treasury Bills a Safe Investment Tool?

Treasury short-term bonds have an advantage over other market products because they have zero risks. The secondary market for TBills is very active and the tradability is increasing.

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Important Points

Treasury bills (T-bill) are short-term debt backed by the U.S. Treasury with maturities of one year or less.
Treasury banknotes typically sell in units of $ 1,000, but some can sell up to $ 5 million.
The longer the maturity date, the higher the interest rate T-Bill will pay to investors.

Treasury Bill Maturities

T-bill maturities range from a few days up to 52 weeks, but typical maturities are 4, 8, 13, 26, 52 weeks. 3 The longer the maturity date, the higher the T-Bill interest rate. It pays investors.

T-Bill Repayment and Interest

It is issued at a discount from the face value of the T-bill invoice (also known as par value). That is, the purchase price is less than the face value of the invoice. For example, a $1,000 bill could cost an investor $950 to purchase the product. When the Act expires, the investor pays the par value (par value) of the bill purchased. If the paramount is greater than the purchase price, the difference is the interest earned by the investor. Although you do not pay interest on a regular basis like Tbill coupon bonds, TBill includes interest that is reflected in the amount you pay at maturity.

T-Bill Tax Considerations

At T-bills, interest income is exempt from state and local income tax. However, interest income is subject to federal income tax. Investors can access the Investigation Department on the TreasuryDirectWeb site for more tax information.

Buying T-bill

Previously issued T-bill can be purchased in the secondary market through brokers. TBills’ new publications can be purchased at government-sponsored auctions on the Treasury Direct site. T-bill purchased at auction is sold through the bidding process. Bids are competitive or non-competitive bids. 2 Additional bidders may be indirect bidders who purchase through pipelines such as banks and dealers. The bidder may be a direct bidder who purchases on your behalf. Bidder ranges from individual investors to hedge funds, banks, and major dealers. The competitive bid allows you to set the price at a discounted price at Tbill’s face value, allowing you to specify the rate of return you want to earn at T-bill. In a non-competitive bidding auction, investors can submit bids to buy a fixed amount of banknotes. The profits received by investors are based on the average auction price of all bidders. Individual investors can place non-competitive bids through the Treasure Direct website. Once completed, the T Bill purchase acts as a government statement that you have borrowed the money you invested under the terms of the bid.

Advantages and Disadvantages of T-Bill Investment

Treasury short-term bonds are one of the safest investments an investor can use. However, this safety can cost a lot. Since T-bills pay a fixed interest rate, you can get a stable income. However, if interest rates rise, the traditional T-bill is at a disadvantage as it is less attractive compared to the market as a whole. As a result, for T-bills, interest rate risk means that existing bondholders may lose higher interest rates in the future. The
T-bills underlying risk is zero, but generally lower than its return bonds and transferable deposits. Because Treasury short-term bonds do not pay interest on a regular basis, they are sold at a discount to the bond’s face value. Profits are realized as the bonds mature. This is the difference between the purchase price and the face value.
However, if sold prematurely, it could result in a gain or loss depending on where the bond price was traded at that point. sale. This means that if sold early, Tbill’s selling price may be lower than the original purchase price.

Advantages

T-bills have a US government guarantee, so the underlying risk is zero.
T-bills offer a minimum investment requirement as low as $100
Interest income is exempt from state and local income taxes but subject to federal income taxes.
Investors can easily buy and sell T-bills in the secondary bond market.

Disadvantage

TBill not only offers lower returns than other debt products but also lower returns than CDs (deposits).
still does not pay coupons (interest payments) until maturity.
T-bill can curb the cash flow of investors who need a stable income.
Because T-bill carries interest rate risk, interest rates may become less attractive in an environment of rising interest rates.