Introduction to Finance

Marketable government securities
, as the term implies, are Treasury securities that can be 
purchased and sold through customary market channels. Large commercial banks and securit-
ies dealers maintain markets for these government debt obligations. In addition, nearly all other 
marketable government securities 
Treasury securities that may 
be bought and sold through the 
customary market channels

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8.3 Default Risk-Free Securities: U.S. Treasury Debt Instruments
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securities fi rms and commercial banks, large or small, will help their customers purchase and 
sell federal obligations by routing orders to institutions that do maintain markets in them. The 
investments of institutional investors, and large personal investors in federal obligations, are 
centered almost exclusively in the marketable issues. Treasury auctions are held for the initial 
off ering of bills, notes, and bonds, as well as for the sale of treasury infl ation-protected secur-
ities and fl oating rate notes. Although the maturity of an obligation is reduced as it remains 
in eff ect, the obligation continues to be called by its original descriptive title. Thus, a 20-year 
Treasury bond continues to be described in quotation sheets as a bond throughout its life.
Treasury Bills 
Treasury bills
are issued with maturities up to one year and, thus, are 
the shortest maturities of goverment securities. They are, typically, issued for 91 days, with 
some issues carrying maturities of 182 days. Treasury bills with a maturity of one year are 
also issued at auction every four weeks. Issues of Treasury bills are off ered each week by 
the Treasury to refund the part of the total volume of bills that matures. In eff ect, the 91-day 
Treasury bills mature and are rolled over in 13 weeks. Each week, approximately 1/13th of the 
total volume of such bills is refunded.
When the fl ow of cash revenues into the Treasury is too small to meet expenditure 
requirements, additional bills are issued. During those periods of the year when revenues 
exceed expenditures, Treasury bills are allowed to mature without being refunded. Treasury 
bills, therefore, provide the Treasury with a convenient fi nancial mechanism to adjust for the 
lack of a regular revenue fl ow into the Treasury. The volume of bills may also be increased or 
decreased in response to general surpluses or defi cits in the federal budget from year to year.
Treasury bills are issued on a discount basis and mature at par. Each week the Treasury 
bills to be sold are awarded to the highest bidders. Dealers and other investors submit sealed 
binds. Upon being opened, these bids are arrayed from highest to lowest. Those bidders asking 
the least discount (off ering the highest price) are placed high in the array. The bids are then 
accepted in the order of their position in the array until all bills are awarded. Bidders seeking 
a higher discount (off ering a lower price) may fail to receive any bills that particular week. 
Investors interested in purchasing small volumes of Treasury bills ($10,000 to $500,000) may 
submit their orders on an average competitive price basis. The Treasury deducts these small 
orders from the total volume of bills to be sold. The remaining bills are allotted on the com-
petitive basis described above. Then these small orders are executed at a discount equal to the 
average of the successful competitive bids for large orders.
Investors are not limited to purchasing Treasury bills on their original issue. Because 
Treasury bills are issued weekly, a wide range of maturities in the over-the-counter market is 
available. Bid and ask quotations are shown in terms of annual yield equivalents. The prices 
of the various issues obtained from a dealer would refl ect a discount based on these yields. 
Because of their short maturities and their absence of risk, Treasury bills provide the lowest 
yield available on taxable domestic obligations. Although some business corporations and 
individuals invest in Treasury bills, by far the most important holders of these obligations are 
commercial banks.