Wednesday, July 22, 2009

the secondary market for treasury bills

treasury bills are traded actively in a secondary market, because some buyer (households, businesses,banks,the fed) prefer to sell their 91-day (or other) treasury bills before the maturity date. the existence of a large secondary market in T-bills allows for their transfer before maturity. this secondary market makes T-bills the most liquid , next to money itself, of all financial assets. there are specialized dealers in government securities who are ready to buy and sell existing T-bills to ultimate lenders at all times.
These dealers compile information about the bid and asked T-bill (discout) rates for currently outstanding T-bills. These discount rates are not the same as the already indicated approximate coupon yields, which give the rates in primary market. Rather they are a means of determining the prices at which existing T-bills will be traded in the secondary market.

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