Not yet registered? Create a OverBlog!

Create my blog

A guide to t-bills

This article briefly describes what t-bills are and how they work. It illustrates benefits that can accrue from this low-risk and low return investment vehicle that ranks among the safest global instruments available for investors.

What are t-bills?

Definition A Treasury bill or t-bill is a short-term investment vehicle through which the government borrows money from investors and pays back within a year. Across the globe, they tend to have maturity periods of one month to one year depending on the country. Investors usually buy treasury bills at discounted rates and redeem them at face value, giving the state the opportunity to fund some of its operations. Investors Unlike conventional treasury bonds that attract a fixed interest rate from the borrowing government, investors buy t-bills through a bidding process at discount rates below the face value. At the same time, t-bills are only redeemable upon expiry and do not attract regular payments like t-bonds and other coupons. In most countries, both residents or non-resident individuals and corporate bodies can invest in t-bills provided they have a legal relationship with a local commercial bank or Central Bank. Since the investment vehicle improves government funds, the restrictions are usually minimal in capitalist economies. Fiscal authorities therefore seek to improve their country’s credit ratings through stable economic performance to attract as many local and foreign investors whenever they float t-bills and t-bonds.

How do they work

Competitive bidders Investors usually apply for t-bills at a central bank as either competitive or non-competitive bids. The competitive bidders indicate their preferred price based on their interpretation of interest rates and market fluctuations. However, these bids may be accepted or rejected depending on the prevailing economic conditions. The non-competitive bidders, on the other hand, can place average bids because their request gets guarantee but with a ceiling on how much they can invest. Those investors who prefer not to hold their government securities to maturity have the option of selling back their investment to the central bank. This move may result in losses with refund amounts usually calculated based on a formula that varies from country to country. In essence, central banks try to make it as punitive as possible to the investor to discourage this practise. Once the maturity date arrives, the investor can choose to rollover their funds into a new round of t-bill issues or alternatively, they can redeem their investment and enjoy the benefits.

Same category articles Stock exchange

Where to invest?

Where to invest?

If you have money to invest, a logical question to ask is, “Where should I invest my money?” but unfortunately there is no one simple answer to that question. There is a way to figure out the best investments, but you should take time and not look for the quick fix.
Introduction to the Jakarta Stock Exchange

Introduction to the Jakarta Stock Exchange

Jakarta, a large bustling city on the west coast of Java in Indonesia, hosts a vibrant and thriving stock exchange. Nowadays, it helps to drive and to stimulate the local economy. However, it has had a varied past. The following article provides you with an introduction to the Jakarta Stock Exchange (JSX) and to its successor, the Indonesian Stock Exchange (IDX).
All about: MSN Money Central

All about: MSN Money Central

MSN Money Central is a financial website which offers a broad array of information on personal money matters and investment news. It is organised by the people who brought you hotmail and has an abundance of speedy, up-to-the-minute information on stocks and shares at the simple touch of a button. This article provides you with an overview of MSN Money Central.
Where to get advice on the best stocks to invest in

Where to get advice on the best stocks to invest in

You can get advice on the best stocks to invest in from almost anybody you know. Everybody has got an opinion. However, for the best stock picks for you, you have to know what your goal is. Do you want a safe investment for the future, which will return a relatively low yield? Or do you want a riskier investment which might make you wealthy? There are good sources of information in each case: brokers, tv analysts, and websites.