Comparison of Treasury Securities Issuance in US and India
| Aspect | United States | India |
|---|---|---|
| Issuing Authority | U.S. Department of the Treasury | Reserve Bank of India (RBI) on behalf of GoI |
| Government Entity | U.S. Treasury | Government of India (GoI) |
| Types of Securities | - Treasury Bills (T-Bills) - Treasury Notes - Treasury Bonds - Treasury Inflation-Protected Securities (TIPS) |
- Treasury Bills (T-Bills) - Government Bonds (G-Secs) - Floating Rate Bonds (FRBs) - Inflation-Indexed Bonds (IIBs) |
| Maturity Periods | - T-Bills: ≤1 year - T-Notes: 2 to 10 years - T-Bonds: >10 years (typically 20-30 years) |
- T-Bills: ≤1 year - G-Secs: 5 to 40 years |
| Auction Mechanism | Competitive and Non-Competitive Bidding via Federal Reserve | Conducted by RBI through E-Kuber (electronic platform) |
| Market Participants | Banks, Mutual Funds, Pension Funds, Individuals, Foreign Investors | Banks, Mutual Funds, Insurance Companies, Foreign Portfolio Investors (FPIs), Individuals |
| Retail Participation | TreasuryDirect (online platform for individuals) | RBI Retail Direct (online portal for individuals) |
| Foreign Investor Access | Allowed under U.S. regulations, widely held globally | Limited but increasing; FPIs allowed with caps on investment |
| Interest Payment | - Zero-coupon (for T-Bills) - Fixed coupon (for Notes & Bonds) |
- Zero-coupon (for T-Bills) - Fixed & Floating (for G-Secs & FRBs) |
| Liquidity | Highly liquid, actively traded worldwide | Liquid but secondary market depth lower than the U.S. |
| Risk Perception | Considered risk-free (backed by full faith and credit of the U.S. government) | Low risk but slightly higher than U.S. Treasuries due to sovereign credit profile |
| Yield Determination | Market-driven through auctions and Federal Reserve influence | Market-driven but influenced by RBI’s monetary policy |
Day Count Conventions for Different Fixed-Income Securities in US Markets
| Security Type | Day Count Convention | Reason for Convention |
|---|---|---|
| Treasury Bills (T-Bills) | Actual/360 | Used for discount instruments in the money market. |
| Treasury Notes (T-Notes) | Actual/Actual | Ensures accurate interest accrual, considering leap years. |
| Treasury Bonds (T-Bonds) | Actual/Actual | Standard for long-term U.S. government debt. |
| Corporate Bonds | 30/360 | Simplifies calculations for fixed-income investors and issuers. |
| Municipal Bonds | 30/360 | Standardized calculation method for state and local debt. |
| Agency Debt (Fannie Mae, Freddie Mac, FHLB) | 30/360 | Used for mortgage-backed and structured securities. |
| Agency Debt (Ginnie Mae, some others) | Actual/360 | Aligns with Treasury market conventions for some government-backed debt. |
Example: T-Bill Discount Yield Calculation
- Face Value (F) = 1,000 dollars
- Purchase Price (P) = 980 dollars
- Days to Maturity (D) = 90 days
Using the discount yield formula, the yield is calculated as:
-
Subtract the purchase price from the face value:
(1,000 - 980) = 20 -
Divide by the face value:
20 ÷ 1,000 = 0.02 -
Multiply by 360 and divide by the number of days to maturity:
(0.02 × 360) ÷ 90 = 0.08 -
Convert to percentage:
0.08 × 100 = 8.00%
Thus, the discount yield of this T-Bill is 8.00%