Government Securities: Treasury Bills

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Table of Contents

Introduction
Treasury Bills
Conclusion
Works Cited

Introduction

Government securities are obligations that the issuing government must meet. It is the role of governments and their appropriate agencies to issue government securities. Various governments issue securities for diverse reasons such as raising funds to finance deficit budgets as well as repaying national debts (Boston Institute of Finance 5). Various securities such as treasury notes, bonds as well as bills are issued via the treasury department to the citizens.

The United States government offers a safe way of investment since its securities bear minimal risks. As a result, their yield is generally low as compared to investments made in the high-risk corporate world. The issuance of government securities is based on the condition of repaying a certain amount upon maturity. The paper focuses on the various aspects of the treasury bills, which are the most issued government securities.

Treasury Bills

Among the various government securities, such as floating rate notes, treasury notes and bonds as well as savings bonds, treasury bills are the most issued. They are vital in diversifying an investor’s investment portfolio as well as providing a secure and low risk short-term investment. The US government sells securities to its citizens electronically, through the primary market and/or secondary markets.

The primary market is mainly for newly issued securities while the secondary market is for securities that are changing hands. Treasury bills are a direct way of short-term investment since their maturities range from a month, six months up to a year. The minimum period of owning treasury bills is ninety days, the 91-day bills then wait until they are mature for repayment.

The US government issues the treasury bills through a rigorous bidding process and at a discount from their face value. This means that only the appreciation of the bills yield returns to the investors since they do not earn interest like other securities such as conventional bonds.

The issuance of treasury bills is done through denominations of $1000 to a maximum of five million dollars in the secondary market. However, in the primary market, the minimum denomination is $100.

The selling of treasury bills is in the book- entry form as opposed to paper security as with other government securities. In the year in which the treasury bills mature, a federal tax is payable by the investor to the government to facilitate the raising of finances (Boston Institute of Finance 3). However, the income is free from local and state taxation.

The interest rate for Treasury bills is determined during auctioning since the sale is via the bidding process. The rates also depend on the period of investment such as four, thirteen, twenty-six, and fifty-two weeks. As of 31 January 2014, the average interest rate for Treasury bills was 0.085%. However, the secondary market quotations for Treasury bills on March 5, 2014, are as follows:

4-week period-0.06percentage
13-week period-0.06percentage
26-week period-0.09percentage
52-week period-0.13percentage

This information shows the fluctuating interest rates for treasury bills daily due to their competitiveness.

Conclusion

It is evident that of all government securities, treasury bills offer an opportunity for direct as well as a short-term investment. It is through investment in securities that citizens can show patriotism to their country because the yield from securities is low as compared to investment in the corporate world as the money raised is for offsetting the various government inadequacies. However, they are the best source of high-quality liquid investment.

Works Cited

Boston Institute of Finance. The Boston Institute of Finance Stockbroker course. New Jersey, NJ: John Wiley & Sons Publishers, 2005. Print.

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Government Securities: Treasury Bills

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