What to know about treasury bills

Treasury bonds are debt securities issued by the State. They are generally in the form of notes, which in turn allow interest to be charged and to be repaid at maturity. You have the possibility of purchasing treasury bonds through individuals (good thanks to a formula) or a bank or various financial institutions (treasury certificate or current account vouchers).

The sale and purchase of treasury bills, made in particular by the central bank, is one of the main means of regulating the mass of money available on the money market.

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🌿 The characteristics of treasury bonds

Each treasury bond has very specific characteristics:

✔️ The issue price of the bond

This is the price that each subscriber must pay when the voucher is issued. It is calculated according to the price which was determined at the end of the placing on the stock market.

✔️ The interest to be paid

We are talking here about the income of the bond. The interest must be paid to the creditor on a date which has been determined in advance. The income that is paid is generally called " ". It is obtained by applying the interest rate on the nominal value of the voucher.

Example : a treasury bill that was issued on June 12, with a face value of 1€, that you have to pay a 3% annual coupon. An investor who bought with 500.000€ of nominal will be allocated each June 12 of the year throughout the duration of the loan, 500.000 × 3% = 15.000 € of interests.

✔️ Refund value

The redemption price of a treasury bond is its “ face value which can generally be different from its acquisition price, and this takes into account its method of placement through auctions.

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Repayment of the bond takes place on the due date of the loan. There are possibilities that the redemption of the voucher will be requested before its expiry, but it will have to be with a minimum of 3 months after it has been subscribed.

🌿 Types of Treasury Bonds

Today we can say that there are two types of treasury bonds:

✔️ Cash vouchers

To obtain your vouchers, you will need to direct to banks or the Caisse d'Épargne (if you opt for the savings bond).

However, it is advantageous for you to split the different investments into several bonds in the event that at some point you need to recover part of the funds before the established deadline.

✔️ Bonds with progressive interest (BIP)

As the treasury bond is a debt on the Public Treasury therefore interest is progressive. THE interest rate evolves over time. It must only be subscribed to in a Public Treasury agency. We can distinguish three forms of Treasury bonds currently are.

Bonds assimilated to the Treasury (OAT) long term so the duration is between ten or thirty years.

Treasury bills of which the rate is fixed and whose interest is annual (BTAN) with a duration of 2 or 5 years

Treasury bills of which the rate is fixed and with pre-computed interest (BTF) with a duration of less than one year.

🌿 Operating mechanisms of treasury bonds

When you subscribe for treasury bonds and treasury collections, whether at the post office or within financial institutions, you are lending money to the state.

Governments (States) emit very large denominations Treasury bills. Securities brokers and banks break up these large denominations and then sell them to various savers.

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When you buy a treasury bill, you are buying it at a price that is lower than its face value. In other words, you buy it at a lower price than what you will get when reimbursed by the government.

Treasury bills are generally offered at maturities that vary from one month to slightly less than one year.

Example

Let's say you buy a treasury bill for a value of 1000 € and get some 1 025 € when it expires, one year later.

The return you will obtain corresponds to a percentage of your initial investment, in our illustration, it would be 2,5% (€25 on €1000).

Even if your investment in Treasury bills is a capital gain, from a tax perspective, it is comparable to a interest income, therefore which is taxable in 100% height.

🌿 Treasury bond yield

In general, the return offered by treasury bonds is very inferior to that of investments made in the longer term.

However, this is an ideal investment for a saver who would not like to put their money on risky projects.

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If you think the bond or stock market is going to crash one day, treasury bills are a safe haven to keep your money safe for a little while.

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Investors who have ample cash at their disposal make their investment choice in treasury bills instead of leaving their money in a bank, as deposits in bank accounts are only accepted for a value of $100 000 to USA.

So, treasury bonds are very famous these days. They constitute a safest placement, especially when their deadline is 3 months or less.

If you wanted to get your money before the maturity date, you would always have the option of selling your Treasury bonds on the open market through a broker.

🌿 Closing

Good treasures constitute a very safe and secure way allowing you to make your investment.

Le risk is quite low compared to other investments. So if you are looking for a way to secure your funds without doubt, then invest in treasury bonds.

🌿 Frequently Asked Questions

✔️ Is it a risk to buy securities?

Unlike investments made in banks or on the various stock markets, investing in treasury bonds poses no risk.

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Reassure yourself of this investment, and this, for a duration of minimum 3 months, then your income will be certain and you will receive it with interest, because the nominal value, the one at which you buy a bond, is always lower than the state reimbursement value.

✔️ What is the difference between bonds issued by public offering and those issued on the auction market?

With regard to securities issued in public offering of savings, a syndicate made up of a management and intermediation company takes care of the placement of securities near investors and the public.

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For securities issued at auction, priority for subscription to bonds is given to credit institutions as well as regional investors who have a settlement account in the books of the general bank.

✔️ Why is the issue price of securities different from the outstanding amount?

On the day the securities are issued, the amount outstanding is identical to the amount issued. But during the life of the security, certain events will modify the outstanding value of the security.

For example the repurchase of securities by the state or even payments of portions of capital, following all of the terms of reimbursement of the securities in question.