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Treasury Bills (Method of issue (Issued by the DMO on a weekly basis to…
Treasury Bills
Method of issue
Issued by the DMO on a weekly basis to market makers through a competitive tender process which takes place on the last business day of each week
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An announcement is made each Monday in the Financial Times with the details of the previous week's tender
When the bills have been acquired they become fully tradable securities and specialist brokers will quote two way prices to subsequent buyers and sellers in the secondary market
Tenders are usually oversubscribed with the minimum accepted bids being the lowest made that is sufficient to dispose of the entire offer
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All bids must specify the maturity (eg one month or three months) of bills being bid for which must be made on a money market yield basis and there is no limit to the number of bids that can be submitted by any one tenderer. The DMO ranks all received bids for each maturity on offer by yield and all bids must be received by 11 am on the day of the tender
While the tender process is underway for the current week's issue the DMO will announce details of the following week's issues, including tender size and the maturities of the bills on offer
CREST constitutes the central register of T-Bill ownership with the legal title being evidenced by the entry of a given number of units against a holder's name in the relevant CREST record which may also be held in Euroclear
Primary participants
Financial institutions that have agreed subject to their own due diligence to bid at Treasury Bill tenders on behalf of investors
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In addition to weekly tenders, the DMO can hold ad-hoc tenders with maturities of up to 28 days, these vary form standard tenders in two ways
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Credit rating
Similar to cash and in the UK have the same credit status as gilt: AAA by Standard & Poor's and Aaa by Moody's
Backed by governments, although UK government default is not impossible, it is unlikely
Registered, redeemable and unconditional short-term (less than one year) obligations of a government issued by a central bank at a discount to face value. They are used to finance a government's short term funding requirements
In the UK, HM Treasury provides an annual remit to the DMO regarding the issuance and annual targets for T-Bills funding. UK T-Bills are essential components of the cash management operations of the DMO and they will become liabilities of the DMO after issue
In the UK, T-Bills are obligations of the government, issued by the DMO on its behalf (in this respect, the DMO has recourse to both the National Loans fund and the consolidated fund)
Deemed to be zero-coupon eligible debt securities as they as issued at a discount to their face value which means that they are a class of security that I dematerialised, issued and held in CREST and Euroclear, thus creating rights and obligations corresponding to those in relation to paper and negotiable MMIs
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Their reward is the difference between their face value (receivable at maturity) by the final holder and the price paid in either the primary or secondary market
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Subsequent issues with same maturity date will be seen as a further issue of the original bills for that date
At redemption date, the government will pay the final holder the full face value
There is no income tax, as there is no income
Minimum purchase is £500,000 which then increases by amounts of £50,000
May be purchased by commercial banks, corporations and mutual funds rather than individuals, although they can be purchased by individuals through primary participants
Primary participants are banks that have agreed to bid at Treasury Bill tends on behalf of investors. These banks are registered by the FCA and the PRA