Treasury Bills :   Treasury bills are the most important money market instrument. They represent the obligations of the Government of India which have a primary tenor like 91 days and 364 days. They are sold on an auction basis every week in certain minimum denominations by the Reserve Bank of India. They do not carry an explicit interest rate (or coupon rate). Instead, they are sold at a discount and redeemed at par. Hence the implicit yield of a Treasury bill is a function of the size of the discount and the period of maturity.

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Though the yield on Treasury bills is somewhat low, they have appeal for the following reasons:

  • They can be transacted readily and there is a very active secondary market for them.
  • Treasury bills have nil credit risk and negligible price risk (thanks to their short tenor).
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