Treasury securities

A short-term debt obligation.

 T-bills are sold in denominationsof $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 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
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 bonds
I Savings Bonds are a low-risk savings
product that earn interest while protecting
you from inflation. Sold at face value.
EE/E savings bonds
EE/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 bills, notes
and bonds are the length until
maturity.
How to buy a treasury 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-bills
two types
Competitive
 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 auctions
 The 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 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 U.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 bps
 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 Assets
 Real 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 Instruments
Certificates 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 Deposit
Certificate of Deposit
A 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 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, CP
 LIBOR: 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

Source: WSJ Paper Edition, August 12

Long 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 Instruments
 Treasury Notes
Maturity up to 10 years

 Treasury Bonds
Maturity 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 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

Source: WSJ Paper Edition, August 12

Current news
Pakistan targets 145 billon rupee in t-bill
auctions on sep 28, Monday 2009
11:33am
References:
www.pnbgits.com/tbills.asp
En.wikipedia/wiki/unitied_states_treasury_
security
www.investopedia.com/teams/t/treasurybill.
asp
www.sbidfhi.com/treasury-bills.htm
www.allinterview.com/showanswers/1735.
html
www.wikinvest.com/rate/treasury_bills
Fince.yahoo.com/q/bc?s=%5eirx
Money.howstuffworks.com/personal…/trea
sury-bills.htm
www.bloomberg.com/markets/rates/index.h
tml