Treasury bills are a secure, short-term investment offering an investor a return after a relatively short commitment of funds. They provide an excellent investment opportunity that’s readily available since they are auctioned weekly.
They have a maturity of one year or less and they do not pay interest before the expiry of the maturity period. They are sold or auctioned at a discount which means that the investors choose the amount that they will receive when the bill matures and pay less than that amount when purchasing it. The government of Kenya through Central Bank of Kenya issues treasury bills for 91 days, 182 days and 364 days for instance if an investor wants to purchase a 364-day treasury bill with a face value of ksh 100000 at a yield of 10% p.a attracting a 15% withholding tax, he would pay khs 92,292.20 and upon maturity after 364 days the investor will receive the full face value of khs 100,000.
One major benefit of investing in treasury bills is that they are secure since they are backed by the full faith and credit of the government and as a result of that, the risk of default on them is next to nothing. When you buy a treasury bill, you are guaranteed by the government to receive the face value of your investment as long as you hold it to the maturity date.
However, the fact that the investment is secure does not mean that treasury bills are completely risk free. They possess some specific risks like inflation risk, interest rate risk though they are not so high due to their short term maturity.
Treasury bills also offer the lowest of interest rates within the economy since they are influenced by the expectations about government budget deficit, short term cash management needs and overall demand and supply in the market for credit.
The rates also have small or no liquidity premium for holding bills instead of cash because holders have a ready market in which to sell the bills should they need cash before maturity date.
Another benefit of treasury bills is its liquidity. They are very liquid assets and investors know that this is one of the most important characteristics of a safe and profitable investment and they help in raising money for short term requirements for the economy.
For any investor looking for a secure investment and reasonable returns should consider investing in treasury bills. They might be yielding lower returns as they are government backed debt securities which makes the returns generated to remain fixed irrespective of the financial market movement but investing in them is worth it.
They are suitable for any investors irrespective of their knowledge and risk tolerance levels and adds a secure investment for investors looking for portfolio diversification.