American Treasury BillsBond Instruments
American Treasury Bills are a type of nominal sovereign bond. Nominal Sovereign Bonds do not adjust for inflation over the bond’s term. You will receive the stated par value at maturity, as well as the interest from bonds over the bond’s term at a fixed rate. Depending on the government, the original issue is purchased via direct sale, or via an auction.
American Treasury Bills, also called “T-Bills”, are a short term bond investment sold by the US government. They range from an ultra-short term four weeks to a short term year. You purchase T-Bills at a discount to their face value and they later mature at the full face value. The difference between your purchase price and the face value is your earned interest. In this respect, the cheaper your purchase price the better your earnings. Bills do not give interest payments. American Treasury Bills function like zero-coupon bonds, delivering the full amount of interest at maturity.
You can buy T-Bills from the US treasury, a broker, a dealer, or a bank. You can also buy, sell, and transfer them in the secondary markets. American Treasury Bills themselves are purchased at auction, where the discount rate is determined. There are two kinds of bids: competitive and non-competitive. In noncompetitive bids, your bid receives the discount rate available. You aren’t allowed to specify or choose your discount rate. In a competitive bid, you tell the treasury the discount amount you want to receive. In this sense, you set your interest rate. The minimum amount purchased at an auction is $100, and all bills afterwards come in increasing increments of $100. The maximum you can purchase depends on your bidding format. The maximum competitive bid is 35% of all T-Bills at the auction. A noncompetitive maximum bid is $5 million in T-Bills.
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