How to Invest in Treasury Bills

Bidding for Bills Directly

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. 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. 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. 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. 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. 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. 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.