Question

U.S. Treasury issues three types of Treasury securities: Treasury bills (T-bills), Treasury notes (T-notes), and Treasury...

U.S. Treasury issues three types of Treasury securities: Treasury bills (T-bills), Treasury notes (T-notes), and Treasury bonds (T-bonds).  The time to maturity (TTM) of T-bills is 12-month or less than 12-month.  The TTM of T-notes is between 1 year and 10 years.  The TTM of T-bonds is longer than 10 years.  Which one(s) (T-bills, T-notes, or T-bonds) belong to the money market instrument(s)?  Which one(s) belong to the capital market instrument(s)?  If you would like to buy Treasury securities, which one(s) would you purchase?  Explain why.

 

Homework Answers

Answer #1

Money market instruments are short term debt instruments ranging in term from overnight to just under a year.

Capital market instruments are long term debt instruments which are used to raise funds for a term of more than 1 year typically.

Thus Treasury Bills Belong to money market instruments, while T-notes and T-Bonds belong to Capital market instruments.

Investors should make investments which match with their liability needs in order to have a balanced portfolio. Since I'm a student, my liabilities are mostly of short term nature (For eg. my college tuition fees which is to be paid annually) and thus I would invest in T-bills which is a money market instrument

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