Short Term Public Debt
As said before the emission of medium and long-term securities by the treasury are situated on the capital markets, that of short term public debt is done in the money markets. The issuing of short-term public debt is done by means of the auction system, as is the case for long-term public debt, being now every fifteen days instead of every month. The two more utilized assets are: the promissory treasury notes and the treasury bills. This last constitutes the most important short-term government issued public debt, in relation to the volume.
Promissory Treasury Notes
They are short-term public debt securities issued at discount, that is, they are bought at a lesser price than the nominal value at which it is received at its maturity. Its terms are of six, twelve and eighteen months.
They can be materializing as accountant annotations or as securities at order.
With the promissory notes there is no retention at its origin and you don’t have to inform the treasury about the investors that posses them.
Treasury Bills
They are issued at a discount over its nominal value that is received at expiration date, and that usually has a period of maturity of one year or less (3 or 6 months). The profit obtained is the difference between the nominal value and the price paid at first for the bill.
Immediately after we will analyze the existing relation between the price and the profitability of the bill.
The price and the profitability of a bill are related as follows:
P = 100/(1+ (r* d/36000))
P = Percentage of nominal price
r = Percentage of type of interest. Equals annual effective type in an annuity base of 360 days.
d = Days until expiration date
Example: If the price of a one-year expiration date bill in the emission is of 926,000 pats, the type of interest would be:
92.6 = 100/ (1 + (r* 365/36000))
R = (100-92.6) (36000/ 365* 92,6)
R = 7.88 %
Lets emphasize that (1.000,000 – 926,000) / 926,000 are a 7.99% superior to the r type of interest. This is so because what has been calculated considers only the profitability that is produced in the first 360 days, not in the 365 days that is the real quantity. The existing relation is:
1 + r* = 1 + r (365 + 360), r = r* (360/365)
For which we will always be underestimating the real profitability of the bill
Some characteristics to emphasize of this type of assets are:
- They are represented as account annotations
- There exists a minimum investment that in the case of the United States is of $10,000.
- As consequence of the needs of the government of financing the public deficit they offer a type of interests that are near or equal to that of the private offers, for which its profitability results very attractive for the investors. It is usually superior to that of the promissory notes.
- They have fiscal advantages, as consequence of the lack of interest payments there is no tax retentions at the origin, but you have to inform to the treasury the list of holders with the finality of supervising them.
- It has maximum security for having the guarantee of government.
- They possess a high grade of liquidity in a way that they are easy to convert into money. Despite existing an active secondary market, its original profitability is not assured if not maintained until its maturity. If in case they are sold before its expiration, you run the risk of having to sell them at a lesser price than that at which you acquired them that is due to the oscillations of the type of interest at the markets.
The petitions may be of two types:
- - Competitive: The capital supplier requires of a concrete amount of securities at a determined price (demands for a price and quantity).
- - Non competitive: In this case there are no existing conditions, the only thing is to indicate the total of money you want to invest without pointing out what price you are willing to pay.
- - The price is the average of the competitive offers that at the end are accepted.
|
