The Introduction Of US Debt Security: Two Month Bill
The Introduction Of US Debt Security: Two Month Bill: US to increase size of debt auctions, introduces two month bills. These headlines have been all the rage lately. The significance simply is that the government is looking for ways to ensure the treasury stays at an optimum level and is able to cope with all the spending and budgetary requirements.
What is Debt Security?
Debt security is in the simplest of terms a debt instrument. Examples of these debt instruments are government bonds, corporate bonds or even preferred stock. Debt security can be traded, that is to say it can be bought and sold between parties. The basic terms for debt securities are well defined such as the borrowed amount (referred to as the notional amount), interest rate, and maturity as well as renewal date.
Debt securities are traded at a higher amount and pace than stock. This is a surprising statement but holds true due to the fact that debt securities are held by large institutional investors as well as government and non-profit organizations. Debt securities are also known as “fixed-income securities”.
The Two-Month Bill
The US Federal Government wishes to increase debt auctions being held in order to raise money. The reason for the arising need is that the Federal Reserve wants to reduce its public debt purchases as stated by US Treasury Department officials. This has led to headlines everywhere announcing US to increase size of debt auctions, introduces two month bills!
The increase in auction sizes is speculated to take place over a three month period. It will also include sales of notes and bonds with fixed rate maturities. The US Central Bank has continued to gradually decrease its bond holdings. These were built up and accumulated during a multi-year economic stimulus program.
Investment in debt securities offer certain advantages such as:
- They are largely risk free.
- It allows companies to raise capital fairly quickly, similarly, governments are also able to collect funds if need arises.
- Raising money through debt securities is cheap.
- The capital amount is preserved and protected
- Since debt securities are fixed rate, they offer a steady stream of income to the investor
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