Fungible Treasury Bills (T-Bills) are government short-term debt securities issued by way of invitation to tender. A fungible security can be issued, the first time, in form of a fixed size then subsequent issues are matched.
Every new security issued is attached to the previous with the same characteristics (nominal unit, maturity date, basis for interest calculation). Only rates and issuance dates change.
Fungibility increases the size of securities, and facilitates liquidity of securities thereby helping to boost trade in the secondary market.
Characteristics of T-Bills:
• Nominal unit: 1 000 000 FCFA (unit amount of each bill).
• The nominal value (NV), multiple of the nominal …show more content…
The due date is expressed in number of days (n).
• Interest rate (i): fixed. Interests are deducted from the issuance’s nominal value
• Basis for interest calculation: by agreement, the basis of calculation for T-Bills is Exact/360.
• Interests: interest is payable in advance on value date, calculated on the nominal value (NV) of bills (discounted at the yield rate requested by the investor).
• Net amount (NM): the net amount received by the issuer corresponds to the nominal value minus interest paid by the issuer. NM = NV (1 − i ∗ n/360)
• Refund: Treasury bills are reimbursed only once at final maturity (bullet redemption).
• Performance (i'): i′ = (NV - 1) 360 NM …show more content…
• Tax applied to Fungible Treasury Bills is that in force in the issuing State. In general, Treasury bills are exempt from taxes for buyers who are residents of the issuing State.
• Fungible Treasury Bills offer short-term investment to meet requirements of cash management security (sovereign issuer) and quality (the State).
• Fungible Treasury Bills offer the investor an optimal risk/return ratio.
• The remuneration is known and paid in advance to the investor on the acquisition of securities (securities interest).
• Investment on Fungible Treasury Bills helps to contribute to the cash resources of the State.
• Treasury bills are traded over-the-counter on the secondary market and are eligible (for those who are eligible) as collateral to access Central Bank refinancing.
Illustration: Let’s take as example, a 364 day T-Bill. The first issue concerns the award of the first tranche of a nominal amount of 20 000 million CFA. The second issue comes 6 months later for a second tranche in the amount of 10 000 million. Securities issued during the second tranche have 182 days of residual maturity. Securities issued on both occasions (first and second tranches) are