Cash Management Bills are securities sold by the Treasury Department.
But they are not for sale all the time.
They are only for sale when the government’s cash reserves are low and when the government needs extra cash.
They are usually short-term securities with maturity dates of 7 to 50 days.
But some can have maturities as long as three to four months.
Cash management bills generally have slightly higher yields than fixed-maturity bills.
Larger financial institutions typically purchase them because they are more difficult to buy than stocks.
There are also minimum investment requirements.
Not all individual investors will know about cash management bills.
If they know about them, they may not be as comfortable investing in such instruments (even though they are a very safe investment).
Frequently Asked Questions
Why are Cash Management Bills not offered all the time?
Unlike regular Treasury bills, which are issued on a predictable schedule, Cash Management Bills are issued irregularly as the need arises.
This flexibility allows the Treasury to respond quickly to changing cash flow requirements or seasonal fluctuations.
How are Cash Management Bills sold?
They are typically sold through competitive bidding at auction, where investors specify the yield they are willing to accept.
The Treasury accepts bids starting with the lowest yield and continues until the offering amount is filled.
How risky are Cash Management Bills?
Cash Management Bills are not risky at all.
They are about as safe as U.S. Treasury Bills, known as “risk-free.”
Cash management bills are considered extremely low-risk investments because the full faith and credit of the U.S. government backs them.
Who typically buys cash management bills?
Primary dealers, which are a select group of financial institutions authorized to trade directly with the Federal Reserve, are the primary buyers.
However, individual and institutional investors can also participate in cash management bill auctions.
How does an individual investor buy cash management bills?
TreasuryDirect is the U.S. Department of the Treasury’s online platform for individual investors.
It allows investors to purchase various Treasury securities directly from the Treasury, including cash management bills.
You need to set up an account on the TreasuryDirect website at https://www.treasurydirect.gov and follow their auction process.
Alternatively, some banks and brokerage firms offer access to Treasury securities.
But you have to ask.
The minimum investment amount can vary depending on where you buy them.
Conclusion
Cash Management Bills are a short-term debt instrument issued by the U.S. Treasury to address short-term fluctuations in government cash flows and to ensure that the government has adequate funds to meet its daily operational needs.
They play a crucial role in the Treasury’s overall debt management strategy.
While some people call Cash Management Bills CMBs, I tried not to use the acronym in this article to avoid confusion with Commercial Mortgage Backed Securities (CMBS), which are different instruments and have been implicated in the 2008 financial crisis.
We hope you enjoyed this article on cash management bills.
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Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
