wealthfactsheet-investment

What are Treasury Bills?

Treasury bills (or T-Bills) mature in one year or less. Like zero-coupon bonds, they do not pay interest prior to maturity; instead they are sold at a discount of the par value to create a positive yield to maturity. Many regard Treasury bills as the least risky investment available to investors

Similarly, SGS Treasury Bills (T-Bills) are short-term debt securities that are issued by the Singapore Government. The tenors for T-Bills range from 7 days to 1 year.

T-Bills are a useful and low risk investment tool that investors could take advantage of.

T-Bills are usually issued by governments around the world as a form of acquring liquid cash from the markets to fund their government operations. In return for the investors money, they provide certain amount of yield to the investors. The yields are usually more attractive than bank's savings rate.

The most usual form of T-Bills comes from the United States, known as the U.S. Treasury Bills.

Why Invest in Treasury Bills?
Why leave the rest of the money in your savings deposits when you could earn higher interest investing in T-Bills? The current yield for a 3 month T-Bill is better than the local banks' savings rate.

T-Bills offer flexibility with no lock-in period; thus you will be able to liquidate your investment whenever you need the money. You can even choose to liquidate just part of it (in multiples of 1000 units).

While some fixed deposits might offer higher interest as a promotion, they usually require you to lock up your deposit for the entire tenure, and require a minimum investment of quite a significant sum. Unlike those, T-Bills only require a minimum investment of less than $1000. If you are unwilling to lock-up a huge chunk of your funds in fixed deposits, T-Bills could be suitable for you.

For equities investors, T-Bills could come in useful during occasions when you are standing on the sidelines and waiting for the next opportunity. Make your money work harder for you by parking your spare cash in T-Bills to earn some interest.

How do Treasury Bills work?
T-Bills have a fixed maturity date and have zero coupons. During the tenor, the owner of the T-Bills will not receive any interest payments. Instead, the T-Bills are sold at a discount and redeemed at par value upon maturity.

For example, if you purchase 1000 units of a 1-year T-Bill at a yield of 1% per annum, you will only need to pay $990 and you will receive $1000 upon maturity a year later.

Similarly for 1000 units of an 86-day T-Bill at a yield of 1% per annum, you will need to pay $998 and you will receive $1000 upon maturity 3 months later

General calculation for yield on Treasury bills is

Treasury note

Treasury notes (or T-Notes) mature in two to ten years. They have a coupon payment every six months, and are commonly issued with maturities dates of 2, 3, 5 or 10 years, for denominations from $100 to $1,000,000.

Treasury bond

Treasury bonds (T-Bonds, or the long bond) have the longest maturity, from ten years to thirty years. They have a coupon payment every six months like T-Notes, and are commonly issued with maturity of thirty years. The secondary market is highly liquid, so the yield on the most recent T-Bond offering was commonly used as a proxy for long-term interest rates in general.