Treasury Treasury securitiessecurities

A short-term debt obligation. T-bills are sold in denominations of

$1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks) or six months (26 weeks).

T-bills are issued through a competitive bidding process at a discount from par, which means that rather than paying fixed interest payments like conventional bonds, the appreciation of the bond provides the return to the holder.

Treasury note and bondsTreasury note and bonds

T-Notes and T-Bonds are quoted on the secondary market

The 10-year Treasury note has become the security most frequently quoted when discussing the performance of the U.S. government-bond market and is used to convey the market's take on longer-term macroeconomic expectations.

Treasury bonds pay interest every six months and mature in 30 years.

Treasury inflation-protected Treasury inflation-protected securities(TIPS)securities(TIPS)

TIPS are marketable securities whose principal is adjusted by changes in the Consumer Price Index. TIPS pay interest every six months and are issued with maturities of 5, 10, and 20 years.

I savings bondsI savings bondsI Savings Bonds are a low-risk

savings product that earn interest while protecting you from inflation. Sold at face value.

EE/E savings bondsEE/E savings bondsEE/E Savings Bonds are a secure

savings product that pay interest based on current market rates for up to 30 years. Electronic EE Savings Bonds are sold at face value in Treasury Direct. Paper EE Savings Bonds are sold at 1/2 face value.

The differences between The differences between bills, notes and bonds are bills, notes and bonds are the length until maturity.the length until maturity.

How to buy a treasury How to buy a treasury bills?bills?

The treasury bill can be purchased through banks, through a dealer or broker, or online from a website like TreasuryDirect. The bills are issued through an auction bidding process, which occurs weekly. Treasury bills are now issued only in electronic form, though they used to be paper bills.

Purchases of T-billsPurchases of T-billstwo typesCompetitive non-competitive bid. Non-

competitive bidding is the simplest way to purchase a treasury bill and is what most people do who are not experts in security trading.

In competitive bidding, is usually done by corporations and people who really understand the supply and demand of the securities market.

Treasury auctionsTreasury auctionsThe U.S. Government currently auctions

Treasury bills, and notes to finance the public debt.

Most of the securities are bought by primary dealers which are large securities dealers; a small amount is purchased by individual investors.

Bids are submitted through Treasury Direct or through depository institutions, the Federal Reserve Bank of New York, and the Bureau of Public Debt. The Treasury's Bureau of Public Debt and the Federal Reserve Bank of New York offer bidding by computer to institutional investors such as banks, brokers and dealers.

How treasury bills make How treasury bills make money?money?

All treasury bills are short-term investments and mature within a year from their date of issue. The option of buying bills with maturity periods of one month, six months or one year. Generally, the longer the maturity period, the more money you will make from your investment. The face value of a treasury bill is called its par value, and the most commonly sold bills have a par between $1,000 and $10,000. The minimum amount you can buy a bill for, though, is $100. T-bills are sold in increments of $100 up to $1 million [source: TreasuryDirect].

.

The purpose of treasury bills is to help finance the national debt. They are a way for the government to make money from the public. People and corporations can buy treasury bills.

There are many reasons why treasury bills are popular. Not only are they affordable enough that almost anyone can buy one, but they offer fast returns, and they are simple, easy to understand and very reliable. that they are easily tradable. They can be sold on the secondary market and easily converted into cash.

One of the only downsides to treasury bills is that the returns are smaller than those from many other forms of investment. This is because they are so low-risk.

Top Foreign holders of Top Foreign holders of U.S. TreasuriesU.S. Treasuries July 2009:Holder

Total China $800.5

billion Japan $724.5

billion United states $220.0

billion Caribbean Banks

$193.2 billion Oil Exporters $189.2

billion Brazil $138.1

billion Source: the United States Treasury.[8]

T-bills rates may rise by 5 T-bills rates may rise by 5 bpsbps TREASURY BILL RATES are expected to move sideways at today’s

auction, with market players unlikely to bid low after last week’s retail bond sale.

"Market players thought the Treasury would start issuing Treasury bills only in the second week of October," a trader said.

"They are now speculating that the Treasury needs more money, [with the T-bill sale coming so soon after the retail bond sale]. So nobody will bid low."

Treasury bill rates are expected to move up or down by five basis points (bps). The 91-day T-bill — the benchmark for short-term loans — fetched 3.992% at the auction last September 8 when they were last auctioned.

The six-month paper got 4.121% while the one-year paper fetched 4.375%. The Treasury is set to sell P7 billion worth of the short-term debt papers

today. The auction scheduled Tuesday last week — also the last day of the retail bond sale — was canceled in order to avoid settlement problems.

"The Treasury bills are an additional supply. There are questions over why the government would borrow so soon when it just has made a large borrowing," the trader said.

"It did not wait for the market to digest the retail bonds. [The auction] is too soon."

The government sold P114.4 billion worth of retail Treasury bonds maturing in three, five and seven years last week.

Real vs. Financial AssetsReal vs. Financial AssetsReal Assets:

◦ Claims on the productive capacity of the economy: land, buildings, machinery, knowledge for producing goods, etc.

Financial Assets: ◦ Claim on the real assets

Are the following assets real or financial?◦ Patents◦ MBA education◦ Loan to the bank to finance the MBA

Short Term Debt InstrumentsShort Term Debt InstrumentsCertificates of Deposit (CDs)

“Money in the Bank” but different from saving account because it has a specific maturity

Treasury bill (T-bills)Short-term debt obligations of the US government,

issued to mature in up to 12 months

Commercial Papers (CPs)Short-term debt Issued by large banks and

corporations with maturities up to 270 days

LIBOR, Euro Libor, Eurodollars, etc.

Certificate of DepositCertificate of Deposit

Certificate of DepositA certificate of deposit is a

promissory note issued by a bank. It is a time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money, this action will often incur a penalty.

Source: WSJ Online

Treasury BillsTreasury Bills Also known as T-bills Matures in one year or less Do not pay interest prior

to maturity (Zero-coupon)

Sold at a discount to the par value to create a positive yield to maturity

Least risky investment available to U.S. investors

T-Bills are commonly issued with maturity dates of 28, 91, and 182 days

Sold by single price auctions held weekly

Source: WSJ Online

LIBOR, CPLIBOR, CPLIBOR: London Interbank

Offered Rate, is the most active interest rate market in the world. It is determined by rates that banks participating in the London money market offer each other for short-term deposits. LIBOR is used in determining the price of many other financial derivatives, including interest rate futures, swaps and Eurodollars

Commercial Paper: An unsecured, short-term debt instrument issued by a corporation, typically for meeting short-term liabilities. Maturities on not longer than270 days.

From WSJ From WSJ

Source: WSJ Paper Edition, August 12

Long Term DebtLong Term Debt

Typically has a periodic coupon + face value at maturity

Face Value (also known as the par value or principal) is the amount of money a holder will get back once a bond matures. A newly issued bond usually sells at the par value.

Coupon is the amount of interest paid per period expressed as a percentage of the face value of the bond

Example: 2 year 3% bond maturing on August 23, 2010 with face value of $100.

Pays $1.5 Feb 09, Aug 09, Feb 10 + $101.5 in Aug 10

Common InstrumentsCommon Instruments

Treasury NotesMaturity up to 10 years

Treasury BondsMaturity between 10 to 30 years

Treasury Inflation Protected Securities Coupon amount is linked to the Consumer Price Index

Corporate Bonds, Municipal Bonds, Agency, Mortgages, etc.

Bond Price: For the last example, how much is the market willing to pay for the stream of $1.5 in Feb 09, Aug 09, Feb 10 + $101.5 in Aug 1. You will see how to price this in later sessions

Treasury Notes and BillsTreasury Notes and Bills Has a coupon value paid

every six months At maturity will also pay the

face value (typically $100) 10 year note is the widely

used benchmark for market's take on long-term interest rates

Treasury stopped issuing the 30 year bonds in October 2001 but it was reintroduced in February 200

Source: WSJ Online

From WSJ From WSJ

Source: WSJ Paper Edition, August 12

Current newsCurrent newsPakistan targets 145 billon rupee

in t-bill auctions on sep 28, Monday 2009 11:33am

References:References:

www.pnbgits.com/tbills.aspEn.wikipedia/wiki/

unitied_states_treasury_security www.investopedia.com/teams/t/

treasurybill.aspwww.sbidfhi.com/treasury-bills.htmwww.allinterview.com/

showanswers/1735.html

www.wikinvest.com/rate/treasury_bills

Fince.yahoo.com/q/bc?s=%5eirxMoney.howstuffworks.com/

personal…/treasury-bills.htmwww.bloomberg.com/markets/

rates/index.html