Listen to a Business English Dialogue About Treasury bill
Serenity: Hi Christopher, have you heard about treasury bills in finance? I’ve seen the term, but I’m not entirely sure what it means.
Christopher: Hey Serenity, treasury bills, also known as T-bills, are short-term government securities with maturities ranging from a few days to one year. They’re issued by the U.S. Treasury to raise funds and are considered one of the safest investments because they’re backed by the full faith and credit of the U.S. government.
Serenity: Oh, I see. How do treasury bills work as investments?
Christopher: Treasury bills work as investments by offering investors a fixed rate of interest, known as the yield, which is determined through a competitive bidding process at auction. Investors purchase T-bills at a discount to their face value and receive the full face value when they mature, earning the difference as interest.
Serenity: That sounds straightforward. Can you explain why investors might choose to invest in treasury bills?
Christopher: Investors might choose to invest in treasury bills because they’re considered low-risk investments with virtually no credit risk, making them a safe haven during times of economic uncertainty or market volatility. Additionally, T-bills are highly liquid, meaning they can be easily bought and sold in the secondary market, providing investors with flexibility and access to cash when needed.
Serenity: Got it. How does the maturity period of treasury bills affect their yield?
Christopher: The maturity period of treasury bills affects their yield in that shorter-term T-bills typically have lower yields compared to longer-term T-bills. This is because investors generally demand higher yields for locking up their money for longer periods, as they’re taking on more interest rate risk.
Serenity: Thanks for explaining, Christopher. It’s helpful to understand the role and benefits of treasury bills in investment portfolios.
Christopher: You’re welcome, Serenity. Treasury bills play a crucial role in providing investors with a safe and liquid investment option, especially for those seeking capital preservation and income stability. If you have any more questions, feel free to ask!