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Treasury Bills and Notes – Investing Basics for these Financial Instruments

January 23rd 2006

Treasury Bills and Notes – Investing Basics for these Financial Instruments

1837 Treasury Note

Now that interest rates are on the rise, interest in Treasury Bills (T-bills) may increase.  These are auctioned off by the Federal Reserve Bank.  When a T-Bill is auctioned, an investor may submit either a competitive or non-competitive Bid. 

A non-competitive bid allows the investor to buy bills at the average accepted bid for that auction.  Usually an investor buying large quantities of bills makes a competitive bid. He (or she) is bidding for a specific yield expressed in percentage points.   

Once the Fed receives all of the bids, they allocate the supply of bills among those bidders who offered to pay the highest prices.  This means the bidders that are accepting the lowest yield.  This yield will likely remain constant over time, but may change in the general level of interest rates. 

 

The price paid for a bill will usually be higher the closer it is to maturity.  According to Ron Wilson, CEO of Desert Community Bank in Southern California, “The day you purchase the bill you buy it at a discount of the face value.”  The minimum purchase is $10,000 for a T-bill.  

Treasury Notes are not the same thing as T-bills.  These notes are obligations for more than one year but not more than 10 years.  Notes are sold in a “book-entry” process through the Treasury, Federal Reserve Bank, financial institution or broker.  Notes that are issued in a definitive form, registered only, and purchased from the Fed or financial institution. 
Notes are sometimes discounted but can sometimes sell at a premium.  Interest is paid on a semiannual basis. Notes are sold in denominations of $1,000, $5,000, $10,000, $100,000 and $1 million.   If you decide to sell a note it must be done so through a financial institution that handles securities.  The Federal Reserve Bank will only accept Notes within 10 business days of maturity. 

 

A single book-entry account can be established by investors.  This is called a Treasury Direct Account and can be created for all marketable Treasury securities at any Federal Reserve Bank or branch servicing office or at the Bureau of Public Debt.  You will receive a Treasury Direct Statement of Account when the securities are issued, reinvested or if any changes are made to the account.  The payments, including principle and interest, are made electronically via direct deposit to an account of a financial institution. 

Always talk to your financial planner before you decide what investments fit your needs the best. 

 
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By Dan Wilson
Best Syndication Staff Writer

Books on Investing

Keywords and misspellings:  treshury tresury t bill bills noats


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Copyright 2005 Best Syndication                                     Last Updated Saturday, July 10, 2010 09:48 PM