What Is a Cash Management Bill?
Cash management bill (CMB) is a short-term security sold by the U.S. Department of the Treasury. The maturity on a CMB can range from a few days to three months. The money raised through these issues is used by the Treasury to meet any temporary cash shortfalls and provide emergency funding.
Understanding Cash Management Bills
When the cash balances of the U.S. Treasury are down and it needs to raise money for a few days, it sells securities, known as cash management bills, to institutional investors. Cash management bills (CMB) are very short-term debt instruments with maturities that range from 7 to 50 days, although maturities of up to 3 months is not uncommon. These debt securities have minimum denominations of $100 and must be purchased in increments of $100. A minimum purchase of $1 million is required, hence, the reason sales are targeted to institutional investors. They supplement regularly auctioned Treasury Bills (or T-bills) and allow The Treasury to simultaneously remain below the statutory debt limit and meet its projected cash needs for any given month.
CMBs may be issued before income tax payments are received or before the government has to make a large payment of some sort. For example, on September 8, 2017, The Treasury issued $20 billion in 7-day cash management bills set to mature on September 15, 2017.
The cash management bill is the most flexible instrument of the U.S. Treasury because it can be issued when needed – in contrast to a regular schedule that is followed to issue other bills, notes, and bonds – allowing the Treasury to have lower cash balances and issue fewer long-term notes. These bills can be issued on any business day with as little as one day notice. CMBs tend to pay higher yields than bills with fixed maturities, but their shorter maturities lead to lower overall interest expense.
CMBs are issued in both fungible and non-fungible form. A CMB is fungible when its maturity date coincides with the maturity of an existing T-bill issuance. In the case of non-fungible CMBs, participation by primary dealers is not compulsory as it is for fungible CMBs or for regularly scheduled T-bills or bond issues.