treasury bills

Reviewed by Vishnava | Updated on Sep 24, 2021


Introduction to treasury bills

A Treasury Bill is backed by the Treasury Department in the US with a maturity of one year or even less. Treasury bills are usually sold in denominations of $1,000. Though, some can reach a total of $5 million during non-competitive bids.

Understanding Treasury Bills

The U.S. government issues Treasury bills with backing several public projects, such as schools and highways. When an investor acquisitions a Treasury Bill, the U.S. government then writes an IOU to the investor. Treasury bills are regarded as safe and conservative investments since the U.S. government backs them.

Treasury Bills are usually held until the maturity date. However, some holders may want to cash out before maturity and recognise the short-term interest gains by reselling the investment in the secondary market.

Types Of Treasury Bills

  • 14 days treasury bill
  • 91 days treasury bill
  • 182 days treasury bill
  • 364 days treasury bill

Features Of Treasury Bills

  • Minimum investment
  • Zero-coupon securities
  • Trading

Advantages Of Government Treasury Bills

  • Risk-free-Treasury bills are among the most common short-term government schemes declared by the RBI and are backed by the central government. Such tools work as a liability to the Indian government as they have to be repaid within the stipulated date.

  • Liquidity- A government treasury bill is declared as a short-term fundraising tool for the government and holds the highest maturity period of 364 days. Individuals seeking to generate short term gains through secure investments can prefer to park their funds in such securities.

  • Non-competitive bidding-Treasury bills are auctioned by the RBI each week through non-competitive bidding, allowing retail and small-scale investors to participate in such bids without quoting the yield rate or price. It enhances the exposure of amateur investors to the government securities market, creating higher cash flows to the capital market.

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