Treasury Bills and Notes – Investing Basics for these
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
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
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
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.
Best Syndication Staff Writer
Books on Investing
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