A Treasury Bill (T-Bill) is a short-term government debt obligation backed by the Treasury Department with a maturity of one year or less. Treasury bills are usually sold in denominations of $1,000 in US (This May differ depending on the country in which you live, but for easy understanding, we will use the US dollar in our illustrations ) However, some can reach a maximum denomination of $5 million in non-competitive bids. These securities are widely regarded as low-risk and secure investments.
The Treasury Department in the central bank sells T-Bills during auctions using a competitive and non-competitive bidding process. Noncompetitive bids—also known as non-competitive tenders—have a price based on the average of all the competitive bids received. T-Bills tend to have a high tangible net worth.
Understanding Treasury Bills (T-Bills)
The government issues T-bills to fund various public projects, such as the construction of schools and highways. When an investor purchases a T-Bill, the government is effectively writing an IOU to the investor. T-bills are considered a safe and conservative investment since the government backs them.
T-Bills are normally held until the maturity date. However, some holders may wish to cash out before maturity and realize the short-term interest gains by reselling the investment in the secondary market.
T-Bill Maturities
T-bills can have maturities of just a few days or up to a maximum of 52 weeks, but common maturities are four, eight, 13, 26, and 52 weeks.
On average, the longer the maturity date, the higher the interest rate that the T-Bill will pay to the investor.
T-Bill Redemptions and Interest Earned
T-bills are issued at a discount from the par value (also known as the face value) of the bill, meaning the purchase price is less than the face value of the bill. For example, a $1,000 bill might cost the investor $950 to buy the product.
When the bill matures, the investor is paid the face value—par value—of the bill they bought. If the face value amount is greater than the purchase price, the difference is the interest earned for the investor.
T-bills do not pay regular interest payments as with a coupon bond, but a T-Bill does include interest, reflected in the amount it pays when it matures.
T-Bill Tax Considerations
The interest income from T-bills is exempt from state and local income taxes. However, the interest income is subject to federal income tax.
Purchasing T-Bills
There are two ways to buy T-bills. You can buy them directly from the government, or on the secondary market through a broker.
Buying T-Bills from TreasuryDirect
New issues of T-Bills can be purchased at auctions held by the government on the TreasuryDirect site. These are priced through a bidding process, with bidders ranging from individual investors to hedge funds, banks, and primary dealers.These purchasers may then sell the bills to other customers in the secondary market.
A competitive bid sets a price at a discount from the T-bill’s par value, letting you specify the yield you wish to get from the T-Bill. Noncompetitive bids auctions allow investors to submit a bid to purchase a set dollar amount of bills. The yield investors receive is based upon the average auction price from all bidders.
Buying T-Bills on the Secondary Market
You can also buy Treasury bills through a bank or a licensed broker. Once completed, the purchase of the T-Bill serves as a statement from the government that says you are owed the money you invested, according to the terms of the bid.
Treasury Bonds vs. Treasury Notes vs. Treasury Bills
Treasury bills are one of several types of debt issued by the government. In addition to T-bills, there are also Treasury bonds and Treasury notes, each referring to different debt products. All three represent fixed-term debt over a period of time.
The main difference between these types of debt is the time to maturity. Treasury bills represent short-term obligations that mature anywhere between a few days to 52 weeks. Treasury notes are medium-term securities that take between two and 10 years to mature. Treasury bonds have the longest lifetime and mature in 30 years.
Advantages and Disadvantages of T-Bills
Treasury Bills are one of the safest investments available to the investor. But this safety can come at a cost. T-bills pay a fixed rate of interest, which can provide a stable income. However, if interest rates are rising, existing T-bills fall out of favor since their rates are less attractive compared to the overall market. As a result, T-bills have interest rate risk meaning there is a risk that existing bondholders might lose out on higher rates in the future.
Although T-bills have zero default risk, their returns are typically lower than corporate bonds and some certificates of deposit. Since Treasury bills don’t pay periodic interest payments, they’re sold at a discounted price to the face value of the bond. The gain is realized when the bond matures, which is the difference between the purchase price and the face value.
However, if they’re sold early, there could be a gain or loss depending on where bond prices are trading at the time of the sale. In other words, if sold early, the sale price of the T-bill could be lower than the original purchase price.
Pros and Cons of T-Bills
Pros
Zero default risk since T-bills have a government guarantee.
T-bills offer a low minimum investment requirement
Interest income is usually exempt from state taxes in many countries.
Investors can buy and sell T-bills with ease in the secondary bond market.
Cons
T-Bills offer low returns compared with other debt instruments as well as when compared to certificates of deposits (CDs).
The T-Bill pays no coupon—interest payments—leading up to its maturity.
T-bills can inhibit cash flow for investors who require steady income.
T-bills have interest rate risk, so, their rate could become less attractive in a rising-rate environment.
What Influences T-Bill Prices?
T-Bill prices fluctuate similarly to other debt securities. Many factors can influence T-Bill prices, including macroeconomic conditions, monetary policy, and the overall supply and demand for Treasuries.
Maturity Dates
T-Bills with longer maturity dates tend to have higher returns than those with shorter maturities. In other words, short-term T-bills are discounted less than longer-dated T-bills. Longer-dated maturities pay higher returns than short-dated bills because there’s more risk priced into the instruments meaning there’s a greater chance that interest rates could rise. Rising market interest rates make the fixed-rate T-bills less attractive.
Market Risk
Investors’ risk tolerance affects prices. T-Bill prices tend to drop when other investments such as equities appear less risky, and the general economy is in an expansion. Conversely, during recessions, investors tend to invest in T-Bills as a safe place for their money spiking the demand for these safe products.
The Central Bank (Federal Reserve in US)
The monetary policy set by the central bank has a strong impact on T-Bill prices as well. The federal funds rate refers to the interest rate that banks charge other banks for lending them money from their reserve balances on an overnight basis. The Fed will increase or decrease the fed funds rate in an effort to contract or expand the monetary policy and the availability of money in the economy. A lower rate allows banks to have more money to lend while a higher fed funds rate decreases money in the system for banks to lend.
As a result, the Fed’s actions impact short-term rates including those for T-bill. A rising federal funds rate tends to draw money away from Treasuries and into higher-yielding investments. Since the T-bill rate is fixed, investors tend to sell T-bills when the Fed is hiking rates because the T-bill rates are less attractive. Conversely, if the Fed is cutting interest rates, money flows into existing T-bills driving up prices as investors buy up the higher-yielding T-bills.
The Federal Reserve (central bank) is also one of the largest purchasers of government debt securities. When the centrai bank purchases government bonds, bond prices rise while the money supply increases throughout the economy as sellers receive funds to spend or invest. Funds deposited into banks are used by financial institutions to lend to companies and individuals, boosting economic activity.
Inflation
Treasuries also have to compete with inflation, which measures the pace of rising prices in the economy. Even if T-Bills are the most liquid and safest debt security in the market, fewer investors tend to buy them in times when the inflation rate is higher than the T-bill return.
For example, if an investor bought a T-Bill with a 2% yield while inflation was at 3%, the investor would have a net loss on the investment when measured in real terms. As a result, T-bill prices tend to fall during inflationary periods as investors sell them and opt for higher-yielding investments.
Example of a Treasury Bill Purchase
As an example, let’s say an investor purchases a par value of $1,000 T-Bill with a competitive bid of $950. When the T-Bill matures, the investor is paid $1,000, thereby earning $50 in interest on the investment. The investor is guaranteed to at least recoup the purchase price, but since the centrai bank backs T-bills, the interest amount should be earned as well.
As stated earlier, the Treasury Department auctions new T-bills throughout the year.
What Are the Maturity Terms for Treasury Bills?
Treasury bills are short-term government bonds and are issued with five terms. These consist of four, eight, 13, 26, and 52 weeks. In Ghana, we have 91 days, 182 days and 365 days.
What Kind of Interest Payments Will I Receive If I Own a Treasury Bill?
The only interest paid will be when the bill matures. At that time, you are given the full face value. T-bills are zero-coupon bonds that are usually sold at a discount and the difference between the purchase price and the par amount is your accrued interest.
How Can I Buy a Treasury Bill?
Treasury bills are auctioned on a regular schedule. Individuals can buy T-bills from the government using the banks. In addition to bidding on new issues, You also can set up reinvestments into securities of the same type and term. For instance, you can use the proceeds from a maturing 52-week bill to buy another 52-week bill. Certain brokerage firms may also allow trading in Treasuries.
Where Is My Paper Hard Copy of the T-Bill I Bought?
T-bills and other government bonds are often not issued on paper and are mostly available in digital form in many countries
How Are T-Bills Different From Treasury Notes and Bonds?
T-bills are short-term government debt instruments with maturities of one year or less, and they are sold at a discount without paying a coupon. T-Notes represent the medium-term maturities of 2, 3, 5, 7, and 10 years. These are issued at par ($100) and pay semi-annual interest. T-Bonds are otherwise identical to T-notes but have maturities of 30 years (or longer in some cases).
The Bottom Line
Treasury Bills, or T-Bills, represent short-term debt obligations by the Treasury. Because they are backed by the government, they are considered extremely low-risk, although they also have relatively low returns.
Market Highlights
INTERBANK FOREX RATES 💴💰
US$GH¢ Buy 10.7936 Sell 10.8044
GB£GH¢ Buy 13.0430 Sell 13.0571
CHFGH¢ Buy 11.6737 Sell 11.6842
AUD$GH¢ Buy 7.5049 Sell 7.5157
CAD$GH¢ Buy 8.0677 Sell 8.0754
JP¥GH¢ Buy 0.0823 Sell 0.0824
NZDGH¢ Buy 6.8580 Sell 6.8680
ZARGH¢ Buy 0.6179 Sell 0.6185
EU€GH¢ Buy 11.6873 Sell 11.6989
CHN¥GH¢ Buy 1.5933 Sell 1.5942
GH¢CFA Buy 56.0700 Sell 56.1256
GH¢NG₦ Buy 42.6243 Sell 42.7280
CRYPTOCURRENCY MARKET
Bitcoin $22,785.83 🔻2.77%
Ethereum $1,618.46 🔻2.86%
Binance Coin $322.57 🔻2.63%
Ripple $0.3968 🔻3.19%
Cardano $0.3894 🔻2.19%
Dogecoin $0.09124 🔻4.11%
Solana $23.08 🔻5.26%
💵Bloomberg USDGHS Cross Rate – *12.2016* (YTD -🔺️20.11%)
💰CBG FOREX RATES💵
US$GH¢ Buy 10.4000 Sell 12.4000
GB£GH¢ Buy 12.6266 Sell 15.1156
EU€GH¢ Buy 11.2777 Sell 13.5086
CH¥GH¢ Buy 1.5417 Sell 1.8379
🔼GSE DAILY GAINERS ➖ PRICE ➖ %CHANGE
No gainers for today
🔻GSE DAILY LOSERS ➖ PRICE ➖ %CHANGE
MTNGH ➡Gh¢0.82 🔻-5.75%
〽Inflation rate in Ghana ➡ 54.10%
🏦Ghana Reference Rate ➡ 33.25%
✳Policy Rate in Ghana ➡ 28.00%
¶ TREASURY RATES💸
91 – Day Discount Rate 32.8131% Interest Rate 35.7454%
182 – Day Discount Rate 30.3719% Interest Rate 35.8100%
364 – Day Discount Rate 26.3701% Interest Rate 35.8144%
🛢Petroleum Products – Average Price
🏗Petrol – Gh¢15.25/ltr (YTD-🔺️+22.98%)
🛢Diesel – Gh¢15.90/ltr (YTD-🔺️+8.90%)
⛽LPG – Gh¢11.00/kg (YTD-🔺️+19.57%)
🏧MARKET INDEXES
*Dow Jones Index🚂⛽ 33,926.01 -127.93 -0.38%
*S&P 500 🏦 4,136.48 -43.28 -1.04%
*Nasdaq Index📲💻 12,006.96 -193.86 -1.59%
* NYSE Composite Index 15,999.40 -123.18 -0.76%
*London FTSE 7,901.80 +81.64 +1.04%
*Germany DAX 15,476.43 -32.76 -0.21%
*Japan NIKKEI 225 27,509.46 +107.41 +0.39%
*Tokyo TOPIX Index 1,970.26 +5.09 +0.26%
*Hong Kong HANG SENG 21,660.47 -297.89 -1.36%
*Shanghai Shenzhen 300 4,141.63 -39.52 -0.95%
*S&P/ASX 200 Index 7,558.11 +46.46 +0.62%
*Bloomsberg EU 500 299.68 +1.22 +0.41%
*France CAC All-Tradable 5,435.46 +48.16 +0.89%
*Dubai DFM General Index 3,382.90 +17.65 +0.52%
*MOEX Russia Index 2,248.30 +4.76 +0.21%
*FTSE/JSE South Africa 74,082.09 +452.79 +0.62%
*Nairobi SE 20 Share 1,664.14 +5.81 +0.35%
*Nigeria SE Main 54,213.09 +214.97 +0.40%
*BBG EMEA World Index 150.40 -0.38 -0.25%
*GSE Composite Index 2,342.62 -58.88 -2.45%
*GSE Financial Index 2,018.12 0.00 0.00%
GSE INDEXES ⏸ 2023 YTD RETURNS%
*GSE Composite Index 2,342.62 🔻-4.14%
*GSE Financial Index 2,018.12 🔻-1.68%
🔼GSE 2023 GAINERS ➖ PRICE ➖ YTD%
BOPP ➡Gh¢8.80 🔼+15.03%
TOTAL ➡Gh¢4.06 🔼+1.50%
🔻GSE 2023 LOSERS ➖ PRICE ➖ YTD%
UNIL ➡Gh¢2.25 🔻-42.01%
FML ➡Gh¢2.50 🔻-16.67%
CAL ➡Gh¢0.56 🔻-13.85%
GCB ➡Gh¢3.51 🔻-10.91%
MTNGH ➡Gh¢0.82 🔻-6.82%
COMMODITIES MARKET
*Brent Crude $/barrel⛽ $79.94 -2.23 -2.71%
*Natural Gas 🏭 $/million BTUS $2.41 -0.05 -1.87%
*Gold 👑 $/troy ounce $1,876.60 -54.20 -2.81%
*Silver 💍 $/troy ounce $22.41 -1.21 -5.12%
*Corn 🌽 $/bushel $677.50 +2.25 +0.33%
*Cocoa 🍫 $/metric ton $2,621.00 -14.00 -0.53%
*Coffee ☕ $/pound $172.80 -5.10 -2.87%
*Sugar🎂 $/pound $21.24 -0.42 -1.94%
*Lumber $/1000 board feet $499.80 -12.40 -2.42%
Rubber USd/100kg $142.70 -0.50 -0.35%
Sources: Bank of Ghana, investopedia, Bloomberg, GSE, Reuters, Citifm, Myjoyonline, Ghanaweb, Doobia, BBC
By: Dr. Mark G. Darko, Accra
Share your story or advertise with us: Whatsapp: +2347068606071 Email: info@newspotng.com
