US Treasury Bills

7 Key excerpts on "US Treasury Bills"

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  eBook - ePub

  Investing in Fixed Income Securities

  Understanding the Bond Market

  • Gary Strumeyer(Author)
  • 2012(Publication Date)
  • Wiley

    (Publisher)

  Treasuries are obviously not entirely free from risk. Despite having little or no credit risk, the value of Treasury securities fluctuates with changes in market interest rates (interest rate risk). The degree of price volatility will depend on many factors including the duration of the bond and the coupon size (see Chapter 2 for discussion of duration and convexity). In addition, some Treasury securities are issued with call options, providing the Treasury with an option to retire the debt prior to its stated maturity. In a volatile interest rate environment, this is a significant risk for investors. Additionally, issues affecting the underlying creditworthiness of Treasuries can surface, however rarely. In early 1996, Moody’s Investors Service threatened a possible downgrade of U.S. Treasuries, due to the failure of the U.S. Congress to raise the debt ceiling during a heated balanced budget negotiation. The gridlock subsided, but the situation provides a reminder that nothing can be taken entirely for granted, even the apparent riskless nature of U.S. Treasuries.

  Security Types

  Treasury bills (T-bills) are short-term debt obligations of the U.S. Treasury with a maturity of one year or less. Thirteen (13) and twenty-six (26) week T-bills are sold directly to the public by the Treasury. The cash management and four-week bills must be purchased through a bank or broker. Treasury bills are discount securities; they are sold at a discount from face value. At maturity, the investor redeems the bill for full face value. The difference between the purchase price and the amount that is paid at maturity represents the investor’s interest. For example, if you buy a $100,000 (face or par value) 26-week T-bill for $99,250, at maturity you will receive $100,000. The difference of $750 represents your interest. Interest on T-bills accrues according to a calculation method known as actual/360. Interest accrues on the actual number of days between purchase and maturity and each year is assumed to contain 360 days.

  Treasury notes

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  Money, Banking, Financial Markets & Institutions

  • Michael Brandl(Author)
  • 2020(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  15-2 Money Market Instruments: Treasury Bills Remember that money market instruments are promises to repay, with interest, that are highly liquid and have a low level of default risk. Also remember that, in addition to the primary market, there is a large secondary market for money market instruments. Some of the most important money market instruments are Treasury bills. 15-2a Treasury Bills in Detail The US federal government is just like you and me 3 —when it spends more than it takes in, it has to borrow the difference. So, when the federal government runs a budget deficit, or it is spending more than it is bringing in through taxes, it must borrow the difference. One way the US federal government borrows to fund its deficit is by selling Treasury bills in the money market. The Treasury Department auctions T-bills weekly to raise the funds the federal government needs for its spending. These T-bills have maturities of 28 , 91 , and 182 days. From time to time, as its funding needs change, the Treasury Department also auctions T-bills with different maturity dates. In 1998, the government lowered the minimum denomination of T-bills to only $1,000 to allow individuals to purchase T-bills along with institutional investors. Individuals can purchase T-bills over the Internet directly from the government, or they can buy them indirectly from brokers and through mutual funds. In addition to government auctioning of T-bills, there is a huge secondary market for T-bills. Perhaps someone who purchased a one-year T-bill now doesn’t want to wait the entire year to get their cash back. In this case, he or she can enter the secondary market for T-bills and sell that T-bill to someone else. In 2015, there was about $1.4 trillion in T-bills outstanding.

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  The Banks and the Monetary System in the UK, 1959-1971

  • J.E. Wadsworth(Author)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  6

  Old and New Activities

  The Treasury Bill – The Story of an Economist’s Invention February 1961

  Everyone has heard about Britain’s Treasury bills, but few people have ever seen one, even though investment in such bills broadened notably in post-war years. Holdings of Treasury bills are in effect restricted to those prepared to make a minimum outlay of about £5000, and in practice the bills are usually left with the bank or other agent of the investor. The Treasury bill was introduced into the City less than a hundred years ago and was derived, like the cheque, from the centuries-old bill of exchange; yet it is not convincingly portrayed by the statutory definition of its commercial forebear – a definition burnt into the minds of all bank officials from their student days. In appearance and texture a Treasury bill is rather like an old-style five pound note, presenting features – of wording, alternations between italic and other typefaces and so on – which give it an air of an age long past. It bears prominently its title, date of issue and maturity, and amount. The substance of the document reads: ‘THIS TREASURY BILL entitles or Order to Payment of [e.g.] ONE HUNDRED THOUSAND POUNDS at the BANK OF ENGLAND out of the Consolidated Fund of the United Kingdom on the 1ST DAY OF FEBRUARY, 1961’. It is signed by the Secretary to the Treasury. An asterisk at the name space leads to a footnote: ‘If this blank be not filled in, the bill will be paid to bearer.’

  Essentially, a Treasury bill is a document by which the government borrows money at short term, and it is the principal constituent of the ‘floating’ part of the national debt. Dealings in Treasury bills take place mainly in the discount market and not, as do transactions in most other government securities, on the stock exchange. Nor do transfers have to be recorded in the books of the Bank of England or elsewhere; if the name space is left blank, the bill is a bearer security, and if a name is inserted, then ownership is transferred by endorsement. A Treasury bill has a term of ninety-one days, or occasionally of sixty-three days, the nominal amount of the bill being repayable at these intervals – without days of grace – after the date of issue.

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  Triumph of the Optimists

  101 Years of Global Investment Returns

  • Elroy Dimson, Paul Marsh, Mike Staunton(Authors)
  • 2009(Publication Date)
  • Princeton University Press

    (Publisher)

  They normally have a maturity when issued of three, six, or twelve months. In most countries, they are issued by auction or tender, but there is usually also a very liquid secondary market in which bills can be bought and sold. Bills are non-interest paying discount bonds. The implied rate of interest is given by the difference between the purchase price and the maturity value. Thus if a twelve month bill with a face value of $100 were purchased at issue at $96 and held to maturity, the return would be 100/96 – 1 = 4.167 percent. For all practical purposes, including taxation, this return is an interest payment. Treasury bills are issued by governments, and thus have effectively no default risk, at least in developed countries, and under all but the most extreme circumstances. Furthermore, unlike longer-maturity government bonds, where investors face uncertainty about the pur- chasing power of future interest and maturity payments, short-dated bills have low inflation risk because a rolling investment in, say, one-month bills will expose the investor to only one month’s uncertainty at any time. When the next one-month bill is purchased, its price will have adjusted to reflect the latest information on expected inflation. Inflation risk is thus small unless there is runaway hyperinflation. Treasury bills are not only important in their own right, but as an asset class they tell us the investment return from cash, and provide us with the closest possible approximation to the risk free interest rate. In many of the sixteen countries covered in this book, there was no treasury bill market at the start of the twentieth century. Wherever this is the case, the prin- ciple that we adopt is to identify the closest possible proxy for the short-term risk free inter- est rate.

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  The Handbook of Financial Instruments

  • Frank J. Fabozzi(Author)
  • 2018(Publication Date)
  • Wiley

    (Publisher)

  Chapter 6Money Market Instruments

  Frank J. Fabozzi, Ph.D., CFA

  Adjunct Professor of Finance School of Management Yale University

  Steven V. Mann, Ph.D.

  Professor of Finance The Moore School of Business University of South Carolina

  Moorad Choudhry

  Senior Fellow Centre for Mathematical Trading and Finance City University Business School

  The money market is the market for financial instruments that have a maturity of one year or less. The financial instruments traded in this market include securities issued by the U.S. Department of the Treasury (specifically, Treasury bills), U.S. federal agency securities (discount note and various “bill” products), depository institutions (negotiable certificates of deposit, federal funds, and bankers acceptances), insurance companies (funding agreements), commercial paper, medium-term notes, repurchase agreements, short-term municipal securities, short-term mortgage-backed securities, and asset-backed securities. In this chapter we cover all but the last three financial instruments.

  U.S. TREASURY BILLS

  The U.S. Treasury is the largest single borrower in the world. Treasury bills are short-term discount instruments with original maturities of less than one year. All Treasury securities are backed by the full faith and credit of the U.S. government. This fact, combined with their volume (in terms of dollars outstanding) and liquidity, afford Treasury bills a central place in the money market. Indeed, interest rates on Treasury bills serve as benchmark short-term rates throughout the U.S. economy as well as in international money markets.

  Treasury bills are issued at a discount to par value, have no coupon rate, and mature at par value. The Treasury currently issues on a regular basis bills with original maturities of 4 weeks, 13 weeks (3 months) and 26 weeks (6 months), as well as cash-management bills with various maturities.

  Cash management bills

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  Debt Markets and Analysis

  • R. Stafford Johnson(Author)
  • 2013(Publication Date)
  • Bloomberg Press

    (Publisher)

  On the menu, one can access description (DES), dealer bid-ask quotes (ALLQ), calculation of the yield (YA), and other information. Treasuries can also be found by entering TK , selecting U.S., and then selecting type of Treasury. BLOOMBERG SCREENS RELATED TO 2008 FINANCIAL CRISIS The 2008 financial crisis led to the American Recovery and Reinvestment Act and the Emergency Economic Stabilization Act, Troubled Asset Relief Program (TARP), and Term Asset-Backed Securities Loan Facility (TALF). Bloomberg screens related to the financial crisis: • TARP: TARP Program • TALF: TALF Program • STRS: Stress Test Overviews • GGRP: Government Relief Programs • NI TARP: TARP News • RESQ: Bailout and Rescue Menu 324 Debt Markets and Securities Treasury Bills Treasury bills are short-term instruments sold as zero-coupon bonds in multiples of $1,000 (par), with the minimum denomination being $1,000. The interest on a T-bill is the difference between the face value and the price paid. This interest, in turn, is subject to federal income taxes, but not state and local taxes. T-bills with original maturities of 13 weeks (91 days) and 26 weeks (182 days) are sold weekly on a regular basis. The Treasury also sells special types of T-bills on an irregular basis. Included with this irregular series are strip bills. This is a package of T-bills with different ma- turities in which the buyer agrees to buy bills at their bid price for several weeks. The Treasury also issues additional amounts of an existing security (T-bills, T-bonds, and T-notes). Such offerings are known as reopenings. For example, the Treasury may offer 13-week T-bills as a reopening of a previously issued 26-week T-bill. All T-bills are issued and registered in a book-entry form, with the computerized record of owner- ship maintained by the Federal Reserve at their offices in Washington.

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  Series 7 Exam: 1001 Practice Questions For Dummies

  • Steven M. Rice(Author)
  • 2023(Publication Date)
  • For Dummies

    (Publisher)

  Because T-bills are short term, they’re not callable. The one true statement is that they’re traded on a discount yield basis because they’re quoted in yields, not prices. 179. B. Treasury bill Typically, when you’re looking at the bid and ask prices, the number on the left is smaller than the number on the right. However, in this case, the number on the left is larger. That means that this has to be the quote for a Treasury bill (T-bill). T-bills are quoted on a discount yield basis where the bid is higher than the ask. If the yields were converted to prices, you’d see that the number on the left would be lower than the one on the right, just like other securities. 198 PART 2 Checking Your Answers ANSWERS 101–200 180. B. I, II, and IV This question is a little tricky. The keyword to this question is earn. Although holders of Treasury bills and Treasury STRIPS don’t receive interest payments, they do receive interest. Treasury bills and Treasury STRIPS are issued at a discount and mature at par value, and that difference is considered interest. Treasury bondholders receive interest payments once every six months. However, Treasury stock is stock that was issued and subsequently repurchased by issuing corporation. Stockholders never receive interest but sometimes receive dividends. 181. C. III, I, II Treasury bills are issued with maturities of 4, 8, 13, 26, and 52 weeks. Treasury notes are issued with maturities of 2, 3, 5, 7, and 10 years. Treasury bonds are issued with maturities of 20 years or 30 years. 182. C. II and III Treasury STRIPS (T-STRIPS) are purchased at a discount and mature at par value. As such, the principal and interest aren’t received until maturity. However, holders must pay taxes on the accretion (the difference between the previous year’s cost basis and current year’s cost basis) every year. 183. A. a guaranteed profit Treasury inflation-protected securities (TIPS) are marketable U.S.

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