You, too, can buy Treasury bills, and the time may be right
They were around before deregulated CDs, even before money market funds. And they are more secure than either one. We're talking about US Treasury securities, including bonds, notes, and bills. When you hear about a federal deficit in the $180 billion range, the money for that debt comes from the sales of these securities to institutions, pension funds, mutual funds, and the public - you.
These securities, or ''Treasuries,'' as they're often called, are backed by the ''full faith and credit'' of the US government, and they pay a competitive market rate. When interest rates are going up, as they have been recently, the demand for Treasuries also goes up.
Of the three kinds of securities, Treasury bills are best in a rising-interest-rate environment. They come in 3-month, 6-month, and 1-year maturities. Treasury notes are issued with maturities of 1 to 10 years, while bonds have 10- to 30-year maturities. When interest rates are going up, you want to be in the shortest-term investments possible, and the 3-month maturities of T-bills are the shortest of this group you can get.
They are also the most expensive, being priced at $10,000, while notes sell for $5,000 and bonds go for $1,000.
Actually, T-bills don't quite cost $10,000. They are sold at discount, meaning the interest is deducted in advance so that at the end of the term you get back $10,000, when you had only put in about $9,100, or whatever the rate at the time dictated.
There are three ways to buy Treasury securities. You can use your banker or broker, or buy them directly from the US Treasury through a district Federal Reserve office or branch near you.
The most convenient way is to use your banker or brokerage. They will take care of all the paper work, for a fee ranging from $25 to $50. If you don't live near a Federal Reserve office, however, and plan to roll over the securities into new ones when they mature, the fee may be worth it if it saves you time and trouble.
Of course, you can buy T-bills directly from the Fed, in person or by mail. If you live near one of the 12 regional Fed offices, you can buy them in person between 9 a.m. and 2 p.m. on the day of the auction, usually a Monday. Bring a certified personal check or bank check for the T-bill's full face value. You can fill out the forms when you get there. If you don't want to stand in line, get there early. After the auction, you will receive a check for the difference between the $10,000 and the actual purchase price of the T-bill.
You can also get the forms and conduct the entire transaction by mail. If you don't know which district Federal Reserve Bank serves you, write to the Board of Governors of the Federal Reserve System, 20th and Constitution Avenue, NW, Washington, D.C. 20551. Or you can call (202) 452-3000.
When you find out which bank represents you, ask for ''Tender for Treasury Bills in Book-Entry Form'' and IRS Form W-9. Specify on the form whether you are buying 3-month, 6-month, or 12-month maturities.
Send completed forms to the Fiscal Agency Department at the same district Federal Reserve Bank and indicate which auction your bid is for. Include a certified or bank check for the full $10,000.
That price will be the average of highest and lowest bids for the day, but it will be pretty close to both, since the high and low are usually only three or four hundredths of a percentage point apart. For example, the low might be 9.60 percent and the high 9.64 percent, giving you a rate of 9.62.
When you receive this refund check, your statement will show if the T-bill is scheduled for rollover, that is, using the proceeds from the maturing T-bill to buy a new one. When this happens, you will again receive a refund check for the unused balance. By continuing to roll over T-bills, you avoid losing any interest between maturity and reinvestment at the next auction. If you choose not to have the bill roll over, you will receive a check for the face value when it matures.
If you believe interest rates are going to keep rising, here is a strategy to help you take advantage of that. Buy a three-month T-bill now, buy another in three months, and another three months after that. As each one matures, roll it over into a higher-yielding T-bill.
A more conservative strategy for people who like Treasuries, however, is to have different maturities. You might have 3-month, 6-month, and 12-month T-bills , as well as bonds and notes. Although you won't be riding to the ultimate highs on the interest-rate cycle, you won't get hit as badly when rates fall, either.
If you would like a question considered for publication in this column, please send it to Moneywise, The Christian Science Monitor, One Norway Street, Boston, Mass. 02115. No personal replies can be given by mail or phone. References to investments are not an endorsement or recommendation by this newspaper.