What’s the Deal with Treasury Bills in Srilanka?

What are Treasury bills? You’ve probably heard of them, but you may be doubtful of how they work and how they affect your finances.

Treasuries bills are short-term government securities that pay interest periodically and can be sold to other investors before their maturity date.

But even though treasury bills in Srilanka are safe investments, you should be aware of their risks and interest rates when making investment decisions about your own portfolio of treasury bills.

So what’s the deal with treasury bills? Let’s take a closer look at them to find out through these steps,

1. Characteristics of Treasuries
2. Advantages of Treasury Bills
3. How to Buy and Sell T-Bills in Srilanka
4. The important thing to consider in Treasury Bills
5. Sample Strategies for Investing in T-Bills

Characteristics of Treasuries

Treasury bills are short-term financial instruments that are used by governments and other investors to raise capital. They’re often used as a short-term source of liquidity because they are issued at a discount and mature at full face value.

Actually, Treasury bills don’t pay interest, really there is no interest associated with them at all. Instead of Interest, it consists an applied discount percentage. That Discount percentage is commonly represented as Interest.

Treasury bills have a face value that’s printed on them. But it’s given for a discount which can be redeemed after the maturity period.

This means if you buy a Treasury bill which says 20% Discount (interest rate) for one year maturity period. It actually means you buy a piece of paper for Rs 80, but it actually worth Rs 100.

Advantages of Treasury Bills

• Treasury bills or T-Bills are low-risk government securities. They’re safer than most other investments.
• Treasury bills can be bought in small denominations and range from one month to one year in maturity.
• Anyone can invest in Treasury bills like Fixed deposits.
• If you buy T-bills and hold them until maturity, you’ll receive your full investment plus added discount rate from the issuing entity.

How to Buy and Sell T-Bills in Srilanka

CBSL has been issuing Treasury bills in Srilanka since 1987 and has become one of Sri Lanka’s leading issuers of government securities over the years due to its strong track record and growing investor base.

As an ordinary investor, you can’t buy Treasury bills directly from the CBSL. You can only buy it from the Primary Dealers in Sri Lanka.

There are 13 Primary Dealers currently in Srilanka. You can find them on CBSL’s official website. Most of them are Banks and Asset Management Companies.

• Get a List of Registered Primary Dealers in Srilanka here

You have to select your primary dealer based on the interest rates they provide and download the registration document from the relevant primary dealer’s website, fill in the details and submit it to the nearest branch.

You can do it manually by visiting the relevant outlets too. But it very from dealer to dealer.

When your Treasury Bills mature you can redeem them from your Primary Dealer.

The important things to consider in Treasury Bills

As T.Bills are discounted paper and not monthly interest-paying investments. You will receive the total interest rate only at the end of the maturity period.

Let’s say you buy a 20% interest rate treasury bill for Rs 100,000 and If you decide to sell your Treasury bill before it matures, you’ll receive its face value of Rs 100,000. But if you sell after maturity then only you will get Rs 120,000.

So the Interest rates that CBSL offers don’t reflect your Treasury Bill rate. Like, If CBSL issues treasury bills at a 25% Discount rate, you will get only about 15-16% rates from primary dealers.

T. Bills are non-nominated. So if whatever happens to the investor, The funds will be acquired by the institute.

But you can open join treasury bills investment whose terms and conditions are exactly the same as an individual investment.

Keep in Mind You have to redeem Bills as soon as they mature. Because Treasury Bills don’t subject to reinvesting or transfer to any saving accounts.

Sample Strategies for Investing in T-Bills

Sri Lanka’s central bank issues T-bills to control inflation and fund government spending.

T-Bills are short-term investments, even if the maximum maturity period is one year. The longer you hold your T-bill, the more interest you earn for a given amount of money.

However, because Sri Lanka does not have inflation controls, now the CBSL prints more bills as needed which means you’ll also have to deal with consequences associated with inflation.

The auctions for the prices will be held two times a month in a cycle. You can check the new updates and rates on CBSL’s official website. Along with the Primary Dealers also update rates with it.

In an attempt to avoid inflating its economy, Sri Lanka now maintains an interest rate of 15-18% on T.Bills. In but near future, the rates will decrease as proportional to inflation.

Treasury Bills are one of the smart risk-free investing instruments for the short term. And they are one of the wise investing ways to grow your money in a recession time like now.