What are treasury bills?

They are known as "letes", as an abbreviation that refers to his nomination: treasure letters, which are public debt securities, that is, securities that reflect a part of the debt that the state contracts with investors, with a fixed interest and issued in the short term, generally periods of 3, 6, 12 and 18 months.

The investor or consumer of the bills obtains the gain of fixed interest during the same time of maturity.

By the time they expire, they are traded on the primary financial market. For the acquirer of the treasury bill, these constitute a financial asset.

Circumstances in which treasury bills are issued

The nation or government that issues this type of securities seeks to obtain funds that allow it to cover its public debt, therefore the advantage of this acquisition is the low remuneration interests.

As is already known, every time the state borrows money, it acquires a public debt, which can adopt different modalities, namely: loans, titles, securities, bonds, etc.

When the debt is under the modality of titles, it means that each representative of each title is a creditor of the state, to whom the state must repay its investment, after the expiration of the term settled down.

The state acquires this debt in order to repay the nation's expenses that it cannot afford.

Concepts related to treasury bills

To more easily understand what the treasury bills refer to and everything related to it, it is necessary to know certain fears in a rough way, such as, for example:

What is the public debt?

It refers to the set of commitments acquired by the State vis-à-vis individuals or another country, as a mechanism of obtaining economic and financial resources to solve solvency problems to face payments or finance Projects.

What is the public treasury?

It designates the resources available to a State to face activities, expenses, measures and others that it wishes to carry out.

The public treasury is composed of diverse elements that represent all the income and its mixture with the expenses of the nation.

This important element finances the measures or projects for the country, in such a way a limited public treasury means little freedom of action for the government, otherwise an excessively large public treasury could bring little control over the use of resources, possibly generating a large corruption.

Functions of the Public Treasury

• Obtain financing for the nation through the issuance of titles or securities represented in the public debt.
• Allow the purchase and sale of titles and debt securities of the nation's Treasury.
• It can serve as a social, economic and political tool during government management.
• It favors the attraction of foreign and local investors to the nation.

Public Treasury Auctions

When the Treasury carries out an auction of securities, previously it requests the deposit of the money, this Deposit is applied on the nominal value to be invested to take it into account when executing the subscription.

Once the auction is held, the effective price is announced and returned to the investor within a few days of raise the auction the difference between this and the previous deposit, in the credit account provided, without application of commission some.

Characteristics of Treasury Bills

• The level of investment risk is extremely low in relation to financial assets of the private sector.
• Its profitability is also low.
• It is one of the state's main tools for obtaining short-term financing.
• Its expiration term is less than 18 months.
• They are issuance of securities at a discount, that is, their cost is lower than the price of the investment.
• The procedure for obtaining it is through the auction in the primary market.
• Their maturities are scaled in approximately quarterly cycles.
• It is an extremely fast instrument to recover the investment

Advantages and disadvantages of the issuance of Treasury Bills.

Its main advantage is that the treasury bills are backed by their issuer "el status ”which allows you to get short-term financing with the lowest purchasing power possible.

As they are short-term securities, in the secondary market they present very small price variations, so they allow less risk to the investor who may need to sell them before maturity.

The disadvantage is that several elements influence the profitability of treasury bills, so it varies over time. In Spain, for example, profitability has decreased thanks to the program of the European Central Bank, dedicated to the purchase of the public debt of the countries included in the European Union, granting greater security to the countries that buy them debt.