The profitability offered by Treasury Bills has reached maximum levels in the last year, driven by the rate increase of the European Central Bank (ECB). In the last auction carried out by the Public Treasury on November 14, the average interest on 3-month bills stood at 3.552% and that on 9-month securities at 3.686%. The previous week, 6-month Letters were bid on with an interest of 3.709% and 12-month Letters with 3.606%.
Individuals who want to continue betting on this type of investments still have two opportunities in the little that remains of the 2023 calendar. Specifically, it is planned that on Tuesday, December 5, in the middle of the December long weekend, Treasury Bills will be auctioned at 6 and 12 months, while a week later, on December 12, the last award of the year will take place, for Letters for 3 and 9 months in 2023.
It is this new appointment and following the path of the November auction, there could be a decrease in profitability linked to the stoppage in the increase in interest rates of the European Central Bank (ECB). In October, the profitability of Letters auctions was at its highest level in 10 years, above 3.8% at both 6, 9 and 12 months. Despite this change in trend after months of rising yields due to the end of the rate hike cycle announced by the ECB, the Letters continue to offer a profitability well above that seen in past years, and even higher than the of many bank deposits.
What are treasury bills
Treasury Bills are short-term fixed income securities issued by the Public Treasury. These are debt securities for 3, 6, 9 and 12 months with very little risk of the Government taking to the market to obtain financing. Each of these Letters has a nominal import of 1,000 euros and this would be the minimum investment amount, although it can be increased by investing multiples. As it is a fixed income, profitability is guaranteed and therefore the buyer has the profits that he will obtain at the expiration of the insured term.
Come buy letters
The Treasury auctions Bills every month, in separate sessions for terms of 6 and 12 months, on the one hand, and 3 and 9 months, on the other. To buy them, the first step to follow is to access the Public Treasury website and open a ‘Direct Account’ at the Bank of Spain. If you have an electronic DNI or digital certificate, the client can make the purchase directly through the internet, selecting the security they want to purchase in the ‘Purchase and Sale of Securities’ section and transferring the import. Another option is to go in person to a Bank of Spain branch with an appointment, which can be made online.
Citizens do not know what the profitability that the Bills will offer in the next auction when making a purchase offer, so there is the option of indicating the minimum interest rate for which they are willing to make the purchase. but there is a risk of being left out of the auction if it closes at a lower rate. Most buyers choose to make non-competitive offers and stay with the price that appears in the auction, without imposing conditions.
Cost and profitability of Treasury Bills
The nominal amount of each Letter is 1,000 euros, therefore the investment will always be this amount or a multiple of it. Treasury Bills do not follow the same system to receive interest as other savings products, since they are discount issues. This means that, at the time of issuance, these securities are purchased at a price lower than the nominal price, in order to receive the 1,000 euros as payment at the time of maturity, with the difference between the two imports being the profitability obtained. For example, if a Bill is purchased at 3%, 970 euros will be paid when purchasing it at auction so that the Treasury will later return 1,000 euros.
If you need to recover the money invested before the end of the established amortization period, the Letters can be sold without having reached their maturity, but the client could lose money depending on how the rates offered by the Treasury have advanced since their purchase. If the Letter is acquired with a lower profitability than that offered by the public body at the time of sale, the price that one will be willing to pay for the title in the secondary market will be lower than that of the initial purchase.
How to declare profits obtained with Treasury Bills
Profits obtained from this type of issues are considered capital gains and are, therefore, subject to Personal Income Tax (IRPF). The same tax will be applied as to any savings income, depending on the amount obtained. Thus, the first 6,000 euros will have a rate of 19%, between 6,000 and 50,000 euros it will be 21%, 23% between 50,000 and 200,000 euros and 28% for imports that exceed this last number.
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