Treasury bills - What are T-bills all about?
Treasury bills are a form of treasury securities offered by the government to investors. They are guaranteed by the government, and are
therefore considered the safest of all investments. Issued in $1,000 increments, investors can purchase up to $5 million in treasury bills at one
Although treasury bills work along the same principal as other kinds of treasury securities such as savings bonds and treasury
bonds, T-bills have a shorter length of maturity than their counterparts, at 13, 26 or 52 weeks. And unlike other securities that offer an
accrued interest rate over the value of the loan, Treasury bills are instead issued at a discount to their face value. For example, an investor
may purchase a 24 week T-bill for $9,500, although its face value is $10,000. When the bond matures, the investor can claim the face value of the
loan, which is more than what he paid for it twenty-four weeks before. The amount that an investor receives in "interest" is determined at the
time of the bill's auction, whether it is bought with a competitive or non-competitive bid. An investor places a competitive bid through a
broker or bank, and specifies the rate of discount that is acceptable to him or her. By choosing a non-competitive bid, the investor agrees to
accept the discount rate that is chosen at the auction.
What are the advantages to investors who buy T-bills?
There are many positive advantages to investors purchasing T-bills as opposed to longer-range securities. Included in these are:
* Overall liquidity: Treasury bills can be sold easily and are particularly stable since they are backed and guaranteed by the federal
* Selling power: T-bills can be sold to banks and other financial institutions.
* Increased financial strategy: Because they have predictable short term dates of maturity, these bills can be used to budget cash flow in the
future, in essence temporarily serving as a savings account
* Flexibility: Investors can sell a bill before it matures or wait until the bond reaches maturity