Treasury Bills

T-bills, or treasury bills, are investments that are sold to investors that range anywhere from a few days to 52 weeks before they mature. They are sold at a discount price so that the investor will make a small amount of money over a short period of time. For example, investors who purchase a treasury bill that amounts to $2,000 may only pay $1,990. At the end of the bill’s maturity date, the investor will be paid the full $2,000. The discount price associated with treasury bills is considered the principle amount. The actual amount the treasury bill pays out is actually the interest added to the principle.

Treasury bills are guaranteed by the U.S. government and are always offered as short term investments. Treasury bills never have a longer maturity date than one year. Investors can invest anywhere from $1,000 to $5,000,000 over a period no longer than one year. Common investment periods that are associated with treasury bills are four weeks, 13 weeks, 26 weeks and 52 weeks. Unlike traditional bonds with fixed interest payments, treasury bills pay whatever the appreciation value is generated during the length of the investment. During the banking collapse of 2008, treasury bills were seeing lower yields. However, in some cases certain treasury bills are now seeing higher yields then ever before. This may be caused by the amount of funds the U.S. government is pumping into the economy. There is also very little or no risk at all involved with treasury bills. Since investors purchase T-bills at a discounted price, they are guaranteed a return. In the current economic state where most investments seem too volatile to invest in, treasury bills are becoming more popular. The fact that many investors are purchasing treasury bills may also be the cause of why they are seeing higher yields.

The way treasury bills are issued to investors is by holding competitive bidding sessions. Auctions are held for investors to be able to take part in risk free investments such as treasury bills. This can be looked at as an opportunity, but it also can be looked at as being too competitive. During the auction, bidders are allowed to specify how much of a return they would like to receive. In other words, the bidder bids at whatever discount price they would like to pay, but they also bid on how much of a return they want to receive at the end of the treasury bill.

Since these auctions hold a significant amount of options to investors, it creates an environment of fierce competition. When an investor wins the bid on a treasury bill, they will purchase the treasury bill at their specified discount priced. They will then be paid the full amount when the bill reaches maturity. These amounts are totally decided by the investor which makes these types of investments extremely secure. However, if there is high competition, it will be difficult to win one of these bids. Smart investors will take the time to figure out what bid price would be competitive enough to win the auction.

Treasury bills are extremely appealing to individual experienced investors as well as new investors. This is because treasury bills start out as low as $1,000, making investing affordable to those who have very little to invest. Treasury bills are considered one of the only investments in the world that have no risks involved. Another advantage to treasury bills is that they are exempt from state taxes as well as local taxes. New investors are highly encouraged to invest in treasury bills before taking on bigger investment plans in the future. Treasury bills are considered a smart way to warm up to the world of investing.

Comments are closed.