What are Treasury Bills?

Published by Thomas Herold in Economics, Investments, Retirement, Trading

'Treasury Bills' is explained in detail and with examples in the Investments edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

Treasury Bills prove to be among the largest category of United States issued Treasuries. They are also called T-Bills for short. Treasury Bills have maturities of a year or less. They never pay investors interest before they mature, making them somewhat like zero coupon bonds. The government instead sells Treasury Bills at a face value discount, which causes there to be a positive yield to maturity. Numerous economists and ratings agency consider Treasury bills to be the lowest risk investments that American and foreign investors can purchase.

T-bills come issued with varying maturity dates. These typical forms of weekly Treasuries can have four week maturity dates, thirteen week maturity dates, twenty-six week maturity dates, and fifty-two week maturity dates. Every week, the government runs single price auctions for its Treasury bills. The quantity of thirteen week and twenty-six week Treasury bills available for purchase at auction are actually announced every Thursday. They are then offered on Monday and issued on the next Thursday.

Four week T-bill quantities get announced Mondays for next day auctions. The bills become issued on Thursday. Fifty-two week bills become announced only on the fourth Thursday, to be auctioned the following Tuesday and issued that Thursday. Associated purchase orders have to be received before 11 AM on Monday auctions at Treasury Direct. Minimum purchases for these T-bills are a reasonable $100, marked down from the former $1,000 minimum. The Treasury redeems T-bills that mature every Thursday. The biggest buyers of T-bills prove to be financial institutions such as banks, and primary dealers in particular. These Treasuries in their individual issue all get one of a kind CUSIP numbers.

Sometimes the Treasury cash balances are lower than usual. At these times, the Treasury often opts to sell CMB’s, or cash management bills. They sell these in much the same way as T-bills, at auction with a discount. Their main difference lies in their irregular amounts and shorter terms of fewer than twenty-one days. They also possess different week days for auction, issue, and maturity. As these CMB’s mature on the identical week day as typical T-bills, commonly Thursdays, they are termed on cycle. When they instead reach maturity on another day, they are known as off cycle.

Treasury bills are regularly sold on the secondary market too. Here, they are both quoted and sold via annual discount percentages, known as a basis. The secondary market trades these T-bills heavily.

The Treasury has modernized its means of offering T-bills to investors recently. Treasury Direct is their means of selling T-bills over the Internet, so that funds can be taken out and then deposited straight to the individuals’ bank accounts. This permits investors to make better rates of interest on their savings than with simple bank account interest.

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The term 'Treasury Bills' is included in the Investments edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.