Money Market Instruments: Treasury Bills

Treasury Bills

• T-bills are short-term notes from the Philippine government with maturities of 91, 182, and 364 days.
• Weekly auctions for 91 and 182-day T-bills; 364-day T-bills auctioned monthly.
• Purchases can be made directly via auctions or through the secondary market.
• Bidders can submit competitive bids (risk of non-allocation) or noncompetitive bids (secured at average price).

Certificates of Deposit

• CDs are issued by federally chartered banks representing deposited funds with specific returns over a fixed period.
• Range of maturity rates from 30 days to six months or longer, face value varies.
• Early withdrawal usually incurs penalties; some CDs may be sold to another investor before maturity.

Commercial Paper

• An unsecured promissory note used in global finance with a maturity of up to 270 days.
• Issued by large corporations to meet short-term obligations like payroll.
• Depends on the issuer’s creditworthiness due to lack of collateral; only firms with excellent credit ratings can sell competitively.
• Priced at a discount from face value, lower interest rates compared to bonds, and interest rates fluctuate with market conditions.

Bankers' Acceptances

• Instruments created by nonfinancial corporations but underwritten by banks, indicating future payment.
• Utilized primarily in financing foreign trade or purchasing on credit, also aids in inventory financing.
• Maturities typically range from one to six months, with banks acting as guarantors considering the issuer's creditworthiness.

Repurchase Agreements

• Repos are agreements where Treasury securities are sold with a promise to repurchase at a higher price later.
• Considered the most liquid of money market investments, with maturities ranging from 24 hours to several months.
• Function similarly to bank deposit accounts, facilitating the transfer of excess cash for corporations.

Purpose of the Capital Market

• Issuers of capital market securities differ significantly from investors purchasing these instruments.

This quiz explores the key aspects of Treasury bills (T-bills) issued by the Philippine government. Learn about their maturity periods, auction processes, and purchasing methods. Test your knowledge on short-term government securities.