What are Canada Treasury bills?

James Rodriguez James Rodriguez  updated on 2022-05-12

Treasury bills are among the most popular securities for conservative investors looking for safe, low-yield investments. But how do treasury bills, or T-bills, work and how do you buy them and take advantage of this short-term return? 

Learn how to invest in Canadian or US Treasury bills, what return you can expect from this investment and what T-bills alternatives may be right for you

What you need to know about Treasury bills:

  • Treasury bills are a type of debt securities issued by a government.
  • The investment in a Treasury bill is secure and 100% guaranteed.
  • The investment horizon of a Treasury bill varies from one month to one year.
  • The return on Treasury bills is low and very safe
  • There are more profitable alternatives for moderately more risk

What is a Canadian Treasury Bill?

A Canadian treasury bill is a tradable money market security issued by the Government of Canada. The government uses them to raise money from the public.

Investment profileYieldCharacteristicsTaxes
PrudentLow
  • Secure investment **Low but guaranteed return
  • Capital gains are taxable
About Treasury bills

Canada T-Bills have a short term to maturity, usually one year or less from the date of issue. They are sold at a discount below their face value and are redeemed at face value at maturity. Unlike bonds, which earn interest, the investor's profit is solely the difference between the purchase price and the sale price of the Treasury bill.

Sale price of the T-Bill - Purchase price of T-Bill = Treasury Bill Profit

Treasury bills also exist for other governments and are popular because they are accessible to individuals, unlike some other money market instruments.

Although the yield is lower than many other investments, T-bills are valued for their safety. They are very low risk because they are guaranteed reputable governments.

How do I buy Treasury bills in Canada?

Buying T-bills is easy. There are a few ways to buy them in Canada. You can:

  • Buy T-bills from the financial institution: it is possible to buy T-bills directly from a financial institution that issues them.
  • Buy T-bills through a broker: Online brokers and banks can also give you access to T-bills.
  • Buying T-bills through a financial advisor: Finally, if you work with a financial advisor, they will be able to help you purchase T-bills.
IntermediaryFeesAdvantages
Online brokers$1 to $2 per orderIndependent investments
Financial institutions0%Direct investment
Financial Advisors1.5 to 3% per yearPersonalized advice Active management of investment
Who sells Treasury bills

Note that Treasury bills are issued in amounts of $1,000, $5,000, $10,000, $25,000, $50,000, $100,000 and $1,000,000. Therefore it requires a significant investment to acquire them. Some institutions and brokers require a minimum purchase of several thousand dollars.

Once purchased, these bills are held for a short period of time, between one month and one year. They are then automatically redeemed at maturity. All you have to do to get started investing in T-Bills is contact an online broker like CIBC or Desjardins. Alternatively, speak with a trusted financial advisor.

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What are the different types of Treasury bills?

The term Treasury bill most often refers to short-term bills. There are, however, several similar investment instruments offered by the Treasury with different times to maturity

  • Treasury bonds: These are long-term investments with a time to maturity that may be between 20 and 30 years.
  • Treasury notes: These are medium-term investments, with a time to maturity that's generally between 2 and 10 years.
  • Treasury bills: these are discussed in this article and are short-term investments. Their time to maturity is no more than one year.

How do Treasury bills work?

Treasury bills are issued through public auctions in Canada. They may be offered for sale up to twice a week.

Unlike bonds, interest rates on treasury bills do not exist. The capital gain from this investment is the difference between the purchase price and the redemption or resale price.

The Treasury bill is sold at a discount below its face value, and is then reimbursed by the issuer at that real face value.

An example of how T-bills work:

Imagine that you purchase a $1,000 t-bill at a discounted price of $960. Once it reaches maturity the Canadian or US Treasury will pay you the full $1,000. You will have made a $40 capital gain on your investment.

Why does the government issue Treasury bills?

Governments issue Treasury bills in order to finance their operations. They may have a deficit budget and need money to operate, particularly to pay civil servants or to finance programs and projects. These treasury bills can also be used to refinance part of their maturing debt.

The rate of return offered by a Treasury bill varies according to the needs of the government, its ability to repay and the monetary policies of central banks.

What is the return on Treasury Bills?

See below for a chart of current and past yields of Canadian Treasury Bills:

Year1-month3-month6-month1 year
20220.15%0.3%0.7%1.12%
20210.07%0.06%0.1%0.15%
20201.65%1.66%1.72%1.74%
20191.6%1.63%1.77%1.87%
20180.95%1.06%1.21%1.52%
Canadian treasury bill yields

The monetary policy of the central bank of the issuing country largely determines its rates. The yield is still low for the majority of these bills, given that central banks have been pursuing a low-interest rate policy since the 2008 financial crisis. At the time of publication in 2022, this trend appears to be reversing.

Treasury bonds are low-risk investments since these securities are 100% guaranteed by the governments. As a result, their yield is also very low.

While there are more profitable investment products, what attracts investors to Treasury bills is above all the security they provide. Noted that if an investor resells a T-bill before its maturity, the return to which they were entitled will not be fully paid out.

The return offered by a Treasury bill is considered a capital gain and is taxable.

Why buy Treasury Bills?

Buying treasury bills is essentially lending money to a government in exchange for a promising return. It is therefore a specific investment method that has certain advantages including:

  • A 100% guaranteed investment: Treasury bills are one of the safest investments on the market since they are fully backed by the issuing government. 
  • Easy-to-understand products: These are also easy-to-understand securities, making them suitable even for novice investors.
  • Affordable prices: Treasury bills can be purchased for as little as $1,000.
  • Option to purchase through a broker: T-bills are products that can be purchased through a financial institution or through a broker such as an online broker.
  • A short-term investment: An investment in a T-bill is a short-term investment that lasts from a few weeks to one year. The return increases with the length of time you hold it.

That being said, other safe investments are available that can provide a higher return. If you’re interested in other investment options, you can get investment advice from our financial experts.

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How do Treasury bill auctions work?

Treasury bills are negotiable debt securities issued by the Treasury through auctions. T-Bills come with different maturities, including:

  • Short-term: maturities of 13, 26 or 52 weeks
  • Medium-term: maturities of 2 or 5 years
  • Long term: maturities of 10 or 30 years

The Treasury intervenes in the banking system through Treasury bill auctions by slowing down or speeding up the supply and demand of liquidity. This can influence the market and securities.

What are the alternatives to Treasury bills?

There are many alternative investments to Treasury bills. If you are looking for a higher return you can turn to stocks. Diversifying your stock investments through mutual funds and ETFs offers good long-term security and growth potential.

  • Stock market shares: These are negotiable securities that represent a share of a company's capital. An investor who buys a share in effect is a partial owner of the company. Shares may be listed shared, meaning that they are openly traded on the market, or unlisted shares It is possible to buy shares via your investment account through a broker.  Stocks can generate a higher return than T-bills through dividends and capital gains when you resell them.
  • Treasury bills and bonds: These are redeemable debt instruments similar to Treasury Bills but with a medium to long-term maturity. They are also issued by the Treasury. Most government bonds have a fixed rate and are redeemable at maturity.
Investment ProductYieldRiskHorizon
Treasury BillsLowZeroShort-term
StocksMedium to highMedium to highMedium or long term
Treasury BondsLowLowLong-term
Treasury bills and alternatives

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What is the time to maturity for Treasury bills?

A T-bills time to maturity is known at the time of purchase. Its duration in Canada is less than one year.

At maturity the government that issued will pay its predetermined value. Your profit is the difference between that price and the discounted price you purchases it at.

Treasury bills have maturities of 1 month, 2 months, 3 months, 6 months or 1 year. They are easy to resell before their maturity, so they are a very liquid investment.

How to buy US Treasury Bills?

Canadian investors may also purchase US Treasury bills. There are a few ways to do this.

The most direct way is to buy them through the U.S. Treasury directly. Canadian investors with RRSPs or TFSAs may prefer buy them on the secondary market through ETFs in order to reap the tax benefits of their registered retirement accounts.

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