Sasanka De Silva Pannipitiya.

Treasury bills (T-bills) and Treasury bonds are both types of debt securities issued by the government to finance its operations and manage its cash flow. However, there are several significant differences between the two:

Maturity: Treasury bills have a maturity of one year or less, typically ranging from a few days to 52 weeks. On the other hand, Treasury bonds have longer maturities, typically ranging from 10 to 30 years.

Coupon Payments: Treasury bills are issued at a discount to their face value and do not make periodic interest payments. Instead, the investor earns interest by purchasing the bill at a discount and receiving the full face value at maturity. Treasury bonds, on the other hand, pay periodic interest (coupon) payments to the bondholder until maturity, in addition to returning the face value at maturity.

Risk and Return: Treasury bills are generally considered to be the safest form of investment because they are backed by the full faith and credit of the government. As they have shorter maturities, they are also less sensitive to interest rate fluctuations. Treasury bonds, with their longer maturities, carry more interest rate risk. While they are still considered relatively low-risk investments, their prices can fluctuate more in response to changes in interest rates.

Investment Horizon: Treasury bills are commonly used by investors with short-term investment horizons or those seeking a safe place to park cash temporarily. They are often used as a means of liquidity management for institutions and individuals. Treasury bonds, with their longer maturities, are typically used by investors with longer-term investment goals or those looking for fixed income over an extended period.

Marketability: Both T-bills and Treasury bonds are highly liquid and actively traded in the secondary market. However, due to their shorter maturities, T-bills generally have higher trading volumes and more frequent auctions.

Yield: Treasury bills typically offer lower yields compared to Treasury bonds due to their shorter maturities and lower risk. Treasury bonds, with their longer-term commitment, tend to offer higher yields to compensate investors for the added risk and longer tie-up of funds.

It’s important to note that the specifics of Treasury bills and Treasury bonds can vary by country, and do due diligence before investing in them.

Sasanka De Silva

Pannipitiya.