HomeTech info

How to Invest in Treasury Bills

Treasury bills are a short-term government-backed investment option. Treasury bills have a face value and are purchased for an amount lower than the face value. On the bill's maturity date, the government pays the bill's holder the face...
Method 1 of 3:

Bidding for Bills Directly

  1. How to Invest in Treasury Bills Picture 1How to Invest in Treasury Bills Picture 1
    Evaluate the credit rating for the country issuing the treasury bills. Almost every country's treasury department issues treasury bills to cover the government's short-term financial needs. The value of these bills depends on the country's credit rating. The lower the country's credit rating, the greater the risk that the government could default on its obligations.[2]
    1. If a country has a lower credit rating, you should be able to buy its treasury bills at a greater discount. When the bill matures, you'll make a little more money. However, you're also dealing with a higher risk that the country will default.
    2. Countries with strong credit ratings are typically the safest investments. At the same time, you won't be able to buy the bills for much of a discount, which means you won't earn as much when the government pays the face value of the mature bill.

    Tip: Make sure you can buy treasury bills directly from the country's treasury department or central bank, especially if you don't live there. Many countries only sell treasury bills to people or entities with an address in the country.

  2. How to Invest in Treasury Bills Picture 2How to Invest in Treasury Bills Picture 2
    Open an account with the country's treasury department. If you want to buy new treasury bills directly from a country's treasury department, you typically must open an account. For most countries, you can set up your account online. The account application is similar to an application to open a brokerage or banking account.[3]
    1. In some countries, you'll open an account with the country's central bank. This account operates similarly to a commercial banking or investment account, except that it is used solely for trading government securities, including treasury bills.[4]
  3. How to Invest in Treasury Bills Picture 3How to Invest in Treasury Bills Picture 3
    Choose a maturity length for the bills you want to bid on. For a treasury bill, the maturity length is the amount of time that must pass from the issue date before you will be paid the face value of the bill. Depending on the country issuing the treasury bills, the maturity length may be specified in terms of days or weeks. The longest maturity length for a treasury bill will typically be around a year, while some may mature in 3 months or less.[5]
    1. The maturity length you choose may depend on how long you can commit the money. For example, if you're trying to earn some interest on funds you plan to use for a vacation in 6 months, you would want to choose a shorter maturity length that would give you access to your money in time for your trip.
    2. If you're planning on using treasury bills as a longer-term investment by reinvesting your earnings continuously into new treasury bills, on the other hand, you might want a longer maturity length of closer to a year.
  4. How to Invest in Treasury Bills Picture 4How to Invest in Treasury Bills Picture 4
    Decide whether you want to bid competitively or non-competitively. When you bid competitively, you specify the amount you want to pay for treasury bills of a specific face value. The discount rate is determined by the market, so bidding competitively does not guarantee that you'll get any treasury bills, or that you'll get treasury bills at the face value you want. With non-competitive bidding, on the other hand, you simply specify the treasury bills you want and buy them at the price decided at auction.[6]
    1. Investors with successful non-competitive bids are all issued bills at the same price. That price is equal to the highest discount margin of the competitive bids. This means that, generally, you can't expect to get a better price through competitive bidding than you would through non-competitive bidding. Competitive bidders tend to be institutional or corporate investors bidding on a large proportion of the available bills.[7]
    2. Some countries do not allow competitive bidding in the primary market for treasury bills. If you want to bid competitively for bills from these countries, you'll have to seek out a broker and buy bills through the secondary market.[8]
  5. How to Invest in Treasury Bills Picture 5How to Invest in Treasury Bills Picture 5
    Complete your application form. The treasury or central bank issuing the treasury bills has an application form for you to fill out if you want to participate in an auction for treasury bills. You must list the specific treasury bill you want to bid on, the type of bid, and details about your bid.[9]
    1. Generally, the application asks for the same types of information you would expect to provide when executing a purchase order through a brokerage.
    2. Some countries may require you to have a minimum amount of money in your treasury or central bank account to cover the cost of the bills, particularly if you've placed a non-competitive bid.

    Tip: Usually you can apply to bid in an auction on the website of the treasury department or central bank. However, some countries still use paper forms that you have to physically deliver to a treasury or bank office.

  6. How to Invest in Treasury Bills Picture 6How to Invest in Treasury Bills Picture 6
    Wait for the auction results. When you submit your application, look at the information about the auction to find out when the auction results will be posted. Typically, they are posted at the same time each week following the auction.[10]
    1. Some countries will take bids for several days, while others only take bids for a few hours. Make sure you know how long bidding is open if you want to avoid missing an auction.
    2. Most countries issue treasury bills each week, so if you miss an auction, you can easily jump in on another one the next week.
  7. How to Invest in Treasury Bills Picture 7How to Invest in Treasury Bills Picture 7
    Submit payment for your treasury bills. Unless money was automatically transferred from your treasury or central bank account to cover your purchase, you have a few days to complete your purchase. Depending on the amount of money you're investing, you may have limited methods of payment, so make sure you arrange a method of payment in enough time to meet the deadline for payment.[11]
    1. If you fail to pay for the treasury bills you received at auction, you may be banned from buying treasury securities directly again.
Method 2 of 3:

Buying Bills through a Broker

  1. How to Invest in Treasury Bills Picture 8How to Invest in Treasury Bills Picture 8
    Set up an account with a brokerage that trades treasury bills. If you already have a brokerage account with a major broker, chances are you already have the ability to buy treasury bills. If you don't have a brokerage account, you can typically set one up online in about 10 minutes.[12]
    1. If you don't already have a brokerage account, it's a good idea to check several and compare fees. Some brokers have no-fee treasury bill trades, while others may charge a fee for bills traded on the secondary market.

    Tip: A brokerage firm may have better customer service than buying directly from the treasury department or central bank. This can be particularly important if you are a beginning investor and have a lot of questions.

  2. How to Invest in Treasury Bills Picture 9How to Invest in Treasury Bills Picture 9
    Choose the treasury bills you want to buy. Ordering treasury bills through a broker can be a little more complicated than placing an order for stock because of all the details you must specify to your broker. Because brokers have access to the secondary market, you have a lot more choices than you would if you ordered new bills directly from the treasury or central bank that issued them.[13]
    1. In addition to deciding on the length of maturity you want, you can also specify the date you want your bills to mature. For example, you could buy a 52-week treasury bill that matures in 2 weeks.
    2. You'll also need to decide whether you want to make a competitive or non-competitive bid for the treasury bills you want. With a competitive bid, you set the price3 that you're willing to pay for the treasury bills. For a non-competitive bid, you simply buy the treasury bills you specify at whatever the auction rate or prevailing market rate (for the secondary market) turns out to be.
  3. How to Invest in Treasury Bills Picture 10How to Invest in Treasury Bills Picture 10
    Place an order for your treasury bills. Ordering treasury bills through a broker is similar to placing an order for stock, mutual fund shares, or other securities. However, you must specify details that are particular to treasury bills. Your order will include the following information:[14]
    1. The specific treasury bill or bills you want
    2. The maturity length for your selected treasury bills
    3. Whether you're placing a competitive or non-competitive bid
    4. The maximum price you want to pay (for a competitive bid)
  4. How to Invest in Treasury Bills Picture 11How to Invest in Treasury Bills Picture 11
    Confirm your treasury bills in your brokerage account. When you place your order with your broker, you typically need to have enough cash in your brokerage account to cover your order. When your broker executes the order, the treasury bills you purchased will be transferred to your brokerage account. It may take a day or two for the treasury bills to show up, depending on whether you bought new bills or bought bills on the secondary market.[15]
    1. Once the treasury bills are in your brokerage account, you can use them before they reach maturity. For example, you could leverage them to buy other securities. Your broker will have more information for you about what you can do with your treasury bills if you don't want to hold them until they mature.
Method 3 of 3:

Managing Your Investment

  1. How to Invest in Treasury Bills Picture 12How to Invest in Treasury Bills Picture 12
    Buy another bill with the proceeds from a maturing bill. If you don't need the proceeds from a maturing treasury bill immediately, you can roll those funds over and reinvest in a new bill. Typically, the new bill must have the same maturity length as the maturing bill.[16]
    1. If you buy direct from the treasury, you may be able to set this preference up automatically. The money you earn from maturing treasury bills would be automatically invested in new bills of the same face value and length of maturity.
    2. If you've set up your account to automatically reinvest, the only money that will be deposited to your treasury or central bank account will be the difference between the face value of the maturing bills and the discount price of the new bills.[17]
  2. How to Invest in Treasury Bills Picture 13How to Invest in Treasury Bills Picture 13
    Have the proceeds deposited into your bank account. Treasury bills don't continue to earn interest after they reach maturity. The difference between the discount amount you paid for the bill and its face value is the most you'll ever make off the bill. Therefore, most treasuries and central banks simply deposit the proceeds from a maturing bill directly in your bank account unless you've provided other instructions.[18]
    1. The proceeds may appear in the treasury or central bank account you opened to buy treasury bills if you purchased them directly. Money also may be deposited in your commercial bank account, if you provided bank account details when you purchased your treasury bills.
    2. If you purchased your treasury bills through a broker, the proceeds from a maturing bill would be automatically deposited into your brokerage account. From there, you could withdraw them into a commercial bank account or use them to invest in other securities.
  3. How to Invest in Treasury Bills Picture 14How to Invest in Treasury Bills Picture 14
    Sell your bills through your bank or broker. If you decide you don't want to keep the treasury bills you have until they mature, you can sell them on the secondary market. Since the treasuries and central banks that issue treasury bills don't deal on the secondary market, you'll usually have to go through a broker to do this.[19]
    1. Some countries do not allow their treasury bills to be sold on the secondary market. Your broker will be able to tell you if the treasury bills you have can be traded.

    Tip: It's usually unwise to attempt to sell treasury bills before maturity. Treasury bills don't have a very high rate of return as it is, and you likely won't find a buyer on the secondary market who is willing to pay face value.

4 ★ | 2 Vote
accountsource

You should read it

Maybe you are interested

Tech info