1. Money Market: Introduction
  2. Money Market: What Is It?
  3. Money Market: Treasury Bills (T-Bills)
  4. Money Market: Certificate Of Deposit (CD)
  5. Money Market: Commercial Paper
  6. Money Market: Banker's Acceptance
  7. Money Market: Eurodollars
  8. Money Market: Repos
  9. Money Market: Conclusion

Treasury bills, or T-bills, are short-term debt instruments issued by the U.S Treasury. T-bills are issued for a term of one year of less. T-bills are considered the world’s safest debt as they are backed by the full faith and credit of the United States government.

 

A key indicator

 

The T-bill rate is a key barometer of short-term interest rates. Treasury bills are sold with maturities of four, thirteen, twenty-six and fifty-two weeks. They do not pay interest, but rather are sold a discount to their face value. The full-face value is paid at maturity, and the difference between the discounted purchase price and the full-face value equates to the interest rate.

 

Purchasing T-Bills

 

There are three ways to purchase T-bills and all other Treasury securities:

 

·         Non-competitive bid auctions allow investors to submit a bid to purchase a set dollar amount of the Bills at the next auction. The yield they receive is based upon the average auction price from all bidders. This is a good method for individual investors and can be done via the TreasuryDirect site. The maximum amount that can be purchased through a non-competitive bid is $5 million.

 

Competitive bidding auctions are geared for those who only want to buy the bills at a specific or desired yield. These bids must be made via a bank or a broker. A buyer can purchase up to 35% of the amount of the initial offering for the bill being auctioned.

·         You can purchase them on the secondary market or via mutual funds and ETFs. T-bills, like all Treasury securities, can be bought and sold on the secondary market. Additionally, there are a number of mutual funds and ETFs that purchase T-bills.

 

The secondary market

 

There is an active secondary market for T-bills, but in order to buy or sell bills here you will need to use a broker as a middle-man. T-bills are very liquid and short-term, but the price will fluctuate based on movements in the rate on newly issued T-bills.

 

Who are the major buyers?

 

Although T-bills can be  bought by individual investors, primary dealers, such as banks and broker-dealers, are the biggest purchasers of T-bills at the various auctions.

 

Other major auction participants include investment funds, pension plans and retirement funds, insurance companies and other large institutional managers.

 

Money Market: Certificate Of Deposit (CD)
Related Articles
  1. Investing

    The History Of The T-Bill Auction

    Learn how the U.S. found the perfect solution to its debt problems and ended up creating one of the largest markets in the world.
  2. Investing

    Introduction to Treasury Securities

    Purchasing Treasury securities backed by the U.S. government and knowing their characteristics can provide a steady guaranteed income and peace of mind.
  3. Investing

    Investing Basics: Flight To Quality

    At times of market stress, investors flee from risky assets to investments the safest ones available.
  4. Investing

    How To Read A T-Bill Quote

    If you want buy and sell US Treasury bills, you need to learn to read the quotes.
  5. Investing

    How Risk Free Is the Risk-Free Rate of Return?

    This rate is rarely questioned—unless the economy falls into disarray.
  6. Investing

    How to Buy Treasuries Directly From the Fed

    If you want to purchase government debt securities, go straight to the source at the Federal Reserve. Learn how individual investors can buy these directly.
  7. Investing

    The Money Market

    The money market provides a relatively stable place to park capital that may be needed within a short time horizon.
  8. Investing

    How to compare the yields of different bonds

    Understand how to compare the yields of different bonds and find out how to equalize and compare fixed-income investments with different yield conventions.
  9. Investing

    Explaining Dutch Auction

    A Dutch auction is a public offering auction.
Trading Center