Treasury Bills

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Overview:

Recently, the yields on Treasury Bills (T-Bills) eased by up to seven basis points (bps) following an improvement in liquidity in the banking system.

About Treasury Bills

  • T-Bills are money market instruments.
  • These are short term debt instruments issued by the Government of India.
  • Tenure: These are presently issued in three tenors, namely, 91 day, 182 day and 364 day.
  • These are zero coupon securities and pay no interest. Instead, they are issued at a discount and redeemed at the face value at maturity.

 

When were treasury bills introduced? 

  • Treasury bills were first issued in India in 1917. They are issued via auctions conducted by the Reserve Bank of India (RBI) at regular intervals.

 

Who can buy?

  • Individuals, trusts, institutions and banks can purchase T-Bills. But they are usually held by financial institutions.
  • They have a very important role in the financial market beyond investment instruments.
  • Banks give treasury bills to the RBI to get money under repo.
  • Similarly, they can also keep it to fulfil their Statutory Liquid Ratio (SLR) requirements.

 

How do T-bills work?

  • Treasury bills are issued at a discount to original value and the buyer gets the original value upon maturity.
  • For example, a Rs 100 treasury bill can be availed of at Rs 95, but the buyer is paid Rs 100 on the maturity date. The return on treasury bill depends on liquidity position in the economy. When there is a liquidity crisis, the returns are higher, and vice versa.

 


Q1) What are Money market instruments?

Money market instruments are short-term, highly liquid debt securities that are typically issued by governments, financial institutions, and corporations to raise capital or manage their short-term funding needs. These instruments are known for their low risk and are often considered a safe place to park funds temporarily.