Investors can invest in government-issued debt through three commonly known securities: treasury bonds, notes, and bills. These securities, known as ‘treasuries’ are issued by the Reserve Bank of India (RBI) and are traded in the money market.
When deciding which type of government-issued fixed-income security to invest in, it's essential to consider your investment goals and risk tolerance. Basics of stock, borrowing, & lending and proper knowledge of the financial markets are necessary before investing in these securities. Obtaining knowledge and getting certified from various online investment banking certification courses ease this process.
Treasury bills (T-bills) - They are money market instruments that are issued in ‘91 day’, ‘182 day’, and ‘364 day’ tenures. T-bills are zero-coupon securities, which means they do not pay any interest. However, they are purchased at a discounted rate and then redeemed at the original value (non-discounted value) after the bill matures. The return to the investors is the difference between the maturity value and the issue price.
T-bills are auctioned by the Reserve Bank of India (RBI) on behalf of the government. The RBI publishes a calendar for auctioning T-bills, which includes the precise date, the amount to be auctioned, and the maturity dates. T-bills are available for purchase in the primary market, where the government gets money by selling investors T-bills. To acquire T-bills, you must usually go through authorised brokers or banks who are authorised to participate in the T-bill auction process. For holding or owning T-bills, you need a trading account, a Demat account and a trading platform.
T-bills are a reliable and secure investment choice in India due to their high liquidity. They are also a popular short-term government scheme issued by the RBI and are backed by the central government. The features of T-bills include low investments, which cater to small and new investors who are looking to invest in T-bills.
Treasury Bonds (T-bonds) - Indian government-issued Treasury bonds are also available for investment in the money market. The India 10-Year Government Bond has a 7.315% yield, and the 10 Years vs 2 Years bond spread is 26.7 bp (basis points). The India 20-Year Government Bond has a yield of 7.416%. The bonds can be purchased through brokerage firms, banks, or bond dealers, and investors need to have a Demat account.
In the derivatives market, T-Bond futures and options are actively traded, allowing investors to hedge their positions or speculate on future movements in T-Bond prices. T-Bonds are popular among investors with significant resources such as banks, insurance firms, and pension funds searching for long-term investments with a fixed rate of return.
Treasury Notes (T-notes) - Treasury notes, often known as T-notes, are medium-term debt securities issued on behalf of the Indian government by the Reserve Bank of India (RBI). They have a 2-10 year maturity duration and pay a set interest rate semi-annually till maturity.
Because of the Indian government's good creditworthiness and low default risk still makes T-notes a relatively secure investment. They are popular with investors seeking a guaranteed rate of return over a medium-term investment horizon.
Key Differences Between T-Bills, T-Notes, and T-Bonds
Treasury bonds offer the highest yields but have the highest risk due to their long-term maturity. Treasury bills are the safest but offer the lowest results. Treasury notes offer a middle ground in terms of both maturity and yield. A comparative study between these three government-issued securities is presented in the below table:
|Features||Treasury Bills||Treasury Notes||Treasury Bonds|
|Maturity||1 year or less||2 to 10 years||More than 10 years|
|Interest Payment||No interest paid until maturity||Semi-annual interest payments||Semi-annual interest payments|
|Interest Rate||Lowest among the three||Intermediate rate||Highest among the three|
|Risk||Lowest risk||Moderate risk||Moderate risk|
|Minimum Investment||As low as Rs 25,000||Rs 10,000||Rs 10,000|
|Volatility||Least volatile among the three||Least volatile among the three||Most volatile among the three|
|Yield Curve||Used as a benchmark for short-term interest rates||Used as a benchmark for medium-term interest rates||Used as a benchmark for long-term interest rates|
|Derivatives Market||T-Bill futures and options are actively traded||T-Note futures and options are actively traded||T-Bond futures and options are actively traded|
|Liquidity||Highly liquid, traded actively in the money market||Less liquid than T-Bills, traded in the money market||Less liquid than T-Bills and T-Notes, traded in the debt market|
The India 91 Day GOI Treasury Bill Bond Future Historical Data shows that the highest value was 98.36 and the lowest was 98.28 between February 24, 2023, and March 24, 2023. It is important to note that past performance is not indicative of future results, and investors should consider other factors such as interest rate risk and inflation risk when making investment decisions.
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