The meaning of treasure letter are those titles of public debt short-term issued by the Public Treasury with the objective of financing the déficit public. They are considered one of the main sources of funding for the states.
How do Treasury bills work?
Having the security of a government and a period of expiration Very short, which can be 3, 6, 9 or 12 months, Treasury Bills are considered the financial investment with the highest security and liquidity in the market. In a very short time it ends up being translated into liquid. They are fixed income securities that are issued by auction and the minimum amount of each request is 1000 euros.
The concept of treasury bill is issued at a discount, which implies that the amount of interest is deducted from the investor at the time the purchase is made. In the event that a one-year Bill is acquired with a nominal value of 1000 euros, the customer will pay a lower price, for example 970 euros. When the Bill expires, you will be able to reimburse it for the face value of 1000 euros, so you will have achieved a profit of 15 euros, which implies a profit of 3%.
Treasury bills should not be confused with government bonds, which, although they are very similar products, the latter are longer-lived as they have a maturity of between three and five years.
By issuing treasury bills, the state seeks to obtain finance in the shortest time and at the lowest possible cost. Given the high liquidity that the bills present and the minimal risk associated with them, the state will pay a fairly low interest. The government that uses public debt to obtain funds undertakes to repay the amount in addition to the previously established interest.
The level of risk is considerably lower compared to products from the private sector, hence they present levels of risk. profitability inferiors
Learn more about treasure letters:
- What is the profitability of the Treasury bills?
- Guide to investing in Treasury bills