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)
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