Is it safe to invest in Treasury bills? We analyze your risk

The high yield of Treasury bills has made them a highly demanded investment product, although if you want to buy Treasury bills, you may have wondered: is it safe to invest in Treasury bills? Here we analyze the pros and cons of one of the investment products of recent years.

What are Treasury Bills?

Treasury bills are public debt securities issued monthly by the Spanish government to raise funds in the short term: three, six, nine and 12 months. They can be acquired through auctions carried out by the Public Treasury and for which a minimum investment of 1,000 euros is required. Finally, you should know that you will receive the amount and interest at maturity, when the term ends, and through the discount method.

Treasury bills are issued ‘at discount’.

At discount’ means that the price of the Treasury bills is lower than their nominal value, which is always 1,000 euros. So, for example, if you are going to buy the 12-month bills and their yield is 3.4%, data from the June auction, in reality their cost would be 966 euros and the Treasury will give you back 1,000 euros after 12 months, so you would be earning 34 euros (or 3.4%).

Is it safe to invest in Treasury bills? Advantages

Among the main advantages that have attracted many small investors are the following:

  • Low risk: is it safe to invest in Treasury bills? The answer is yes, since they are issued and guaranteed by the Spanish State, which means that it is responsible for their payment. For this reason, they are considered one of the safest products on the market, since it is very difficult for a country like Spain to default. This can be extended to other forms of Spanish public debt, such as 3-year government bonds, whose yield can also be attractive for certain investor profiles, or those of other developed countries.
  • High liquidity: another advantage of treasury bills, mainly compared to other debt securities such as bonds or debentures, is that you will recover your money quickly, since the maturities are very small. This allows you to avoid financial stress in the event of a specific problem. It also allows you to obtain the fruits of your investment, the interest, quickly, so that you can use them to generate more profits. This, for example, is not the case with bonds or time deposits, since they tend to have the principal tied up for a longer period of time. For this reason, too, it is safe to invest in Treasury bills.
  • Predictable profitability: although technically you do not know exactly the profitability of future bills, since they are auctioned, you can get an idea of it. So, for example, you know that the yield that the new bills will offer will be similar to that offered in recent months, so you can more or less imagine what you could earn with your investment. This is a great advantage, for example, compared to equities (shares), since in the latter case you never really know how much you will earn with your investment, and even nobody guarantees that you will not lose part of your money.
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Is it safe to invest in Treasury bills? Risks

Obviously, not all the features of Treasury bills are points in their favor, but there are also some drawbacks and risks that investors should be aware of if they are going to acquire them:

  • Inflation risk: one of the virtues of Treasury bills is that they offer you a return so that your savings grow, but this is not always the case for several reasons. One of them is that the profitability offered does not exceed inflation, the growth of prices, so that in spite of obtaining profits we lose purchasing power. In general, this does not usually happen, since they tend to pay more, but when inflation grows strongly and rates are low it can happen, so we must be careful.
  • Low yields: another risk that can affect our savings invested in Treasury bills is to find very small or directly negative yields. That was what happened between 2015 and April 2022, as the yield on 12-month bills became negative.
  • Market risk: this is a very particular risk, which only occurs when we sell debt securities on the secondary market. In this case, the risk is to sell them at a loss, i.e., receiving less money than invested. Although it is not common, it typically occurs when, for example, future rates are higher than current rates, which reduces the value of the current bonds. This risk in the case of bills is much more limited. Nevertheless, it is safe to invest in Treasury bills.

Investing in Treasury Bills with inbestMe

As you have seen, it is safe to invest in Treasury bills, so it is still very attractive for savers, since the benefits far outweigh the risks. Especially in two ways: the security for the saver that he will not lose his money and that the current yield is high.

Once all the above has been taken into account, there is still an important detail to address: What is the best way to invest in Treasury bills? In this case, the simplest and most efficient option we propose is to do it through an investment platform such as inbestMe, as it offers both a wide range of possibilities at very competitive costs and gives the possibility of completing such investment with other highly demanded savings products, such as its savings portfolio.

In this case, inbestMe offers users two types of plans to invest in fixed income: a bold and a prudent one. Both have up to three different portfolios, to best fit your profile. Thus, you will be able to grow your savings without worrying about anything else.

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