Government bonds and Treasury bills everything you need to know

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If you are thinking about investing in State Bonds and Treasury bills , or have questions about how they work, we have prepared a complete guide with all the most frequently asked questions.

Fixed Income Podcast

Fixed rent

Fixed income definition

Difference between government bonds and treasury bills

Treasure letters

What are treasury bills?

Treasury bill profitability

Treasury Bill Auction Schedule

State bonds and obligations

What are state bonds?

Difference between bonds and government obligations

Where are bonds and government obligations listed?

Profitability of government bonds

Calendar of auctions of bonds and obligations of the State

How do interest rates affect government bonds?

General information

How to buy a State bond?

Maximum date to attend Treasury Auctions

Glossary of basic terms for public debt instruments

What is fixed income?
The so-called fixed income – Treasury bills, State bonds, obligations … – are debt instruments issued by a state or private company, homogenized with the same value that allows them to be exchanged between investors.

Difference between Treasury bills and State bonds and obligations
One of the main differences is the issue term:

Treasure letters
Treasury Bills are short-term , for issues of less than 18 months . The discount formula is used by which we buy a nominal, less the interest rate applicable to the operation and the total nominal is returned to us at maturity .

State bonds and obligations
They are for emissions over 18 months. The payment of coupons  is used , where at the initial moment we pay the nominal or a percentage of it and we are paid coupons (quarterly, semi-annual or annual) of % of the nominal, being, on the expiration date of the product , when the nominal plus the last corresponding coupon is returned .

What are treasury bills?
Treasury bills are short-term fixed income securities represented Telegram Number Data exclusively by account entries . The Letters are issued with a minimum amount of 1,000 euros, with higher requests having to be multiples of 1,000 euros.

How is the profitability of Treasury bills?
Treasury bills are issued for an amount less than that which will be received at the time of repayment . The profitability will be the difference between the reimbursement price and its acquisition price .

Currently, the Treasury issues Treasury Bills with the following terms:

3-month Treasury bills.

6-month Treasury bills .

9-month Treasury bills .

12-month Treasury bills.

The letters are auctioned on Tuesdays. You can check the dates of the upcoming auctions in this article:  Treasury Bill Auction Calendar .

What are State bonds and obligations?
Within all these instruments, the State bond is a long-term security issued . State bonds and obligations are issued by the Government to finance the public deficit .

State bonds and obligations are issued and "promise" a fixed return that is paid through annual payments.

Securities issued at a value (face value) pay an explicit specified interest on the investment . That is, a 3% bond will periodically pay the equivalent of 3% of the initial investment.

Issuances are carried out through competitive auction and in tranches to ensure great liquidity. They are issued for nominal amounts of €1,000 or multiples of this amount.
Difference between bonds and government obligations
The only difference between a bond and a debenture is its repayment period:

Bonds are currently issued for 3 and 5 years .

Bonds are issued for 10, 15, 30 and 50 years.

State bonds and obligations are auctioned on Tuesdays. You can check the dates of the next auctions in this article:  State bond and obligation auction calendar
Where are bonds and government obligations listed?
These products are then listed on the market during their life period in order to offer the investor the option of selling or buying them before reaching their end , which will be when they return all the capital invested to the investor. Thus,  the real price of the security may be above, below or at par with the nominal value during its life (1,000 euros per security), this may depend on:

The proximity or distance of the coupon payment (interest on the nominal).

The secondary market interest at the time of purchase

Health of the economy of the country or the issuing company.



What is the profitability of government bonds?
The profitability is prefixed throughout the life of the State bond (coupon) so that if it is maintained until maturity, the investor will know exactly how much and when he will get it, as long as the issuing company or organization complies with the payments.

Currently, there are other more sophisticated types of bonds, with variable interests referenced to certain indicators, such as interest rates (Euribor, etc.), stock market indices, or even to the evolution of a certain share, index , etc. Which means that the profitability of these specific products is no longer defined from the beginning.

Profitability is related to the credit quality – ability to pay the debt – of the issuer, so the worse the credit rating ( rating ), the greater the risk and, therefore, the greater the profitability offered will have to be for an investor to may be interested.