Choosing an Ethiopian Treasury bill maturity

Start with the payment the money must cover

Write down when the money will be needed and which expenses may arise before then. Some spending has a fixed date, such as a scheduled payment; other needs are uncertain. Money reserved for those earlier needs should remain available when required.

Consider a fictional payment due on day 100. A bill maturing on day 91 would repay before it, leaving a gap to plan for. A bill maturing on day 182 would repay after it. Even if the 182-day bill offered a higher yield, that would not resolve the timing mismatch.

Use actual dates rather than rounding every 91-day term to a calendar quarter. A bill bought after issue also has a remaining maturity that differs from its original tenor.

What changes as the term gets longer

A shorter maturity brings the next repayment closer. It gives an earlier opportunity to use the money or decide whether to invest again. Maintaining an investment over a longer period then depends on the terms available at later purchases.

A longer maturity sets a later repayment date. Fewer new purchases may be needed over the same planning period, but the money stays committed for longer. If it is needed early, a sale depends on an executable price and an available buyer.

There is no requirement for longer bills to offer a higher yield at every auction. Compare the actual observations rather than assuming that the maturities form a steadily rising sequence.

Compare the return over the time involved

An annualized yield makes quotations easier to compare across terms. It is not the percentage cash gain earned during each shorter bill. To understand the cash outcome, read the purchase outlay and the amount received at maturity.

Suppose, purely as an illustration, an ETB 10,000 outlay returns ETB 10,200 after 91 days. The holding-period gain is ETB 200, or 2%. Another ETB 10,000 outlay returning ETB 11,000 after 364 days gives ETB 1,000, or 10%, over that much longer period. The larger cash gain comes with a different time commitment.

When comparing observed yields, choose the four maturities from one auction. When following one term over time, keep that maturity fixed. The latest saved observations below provide that common-auction starting point.

Plan what happens when a short bill matures

Repayment creates a new decision. The money may be spent, kept available or invested in another bill. A later purchase will have its own price, repayment date and transaction costs.

For that reason, repeatedly buying short bills is not the same cash-flow arrangement as buying one longer bill today. Later yields can be lower or higher, and the next available maturity may not line up exactly with the spending date.

For funds with several future uses, a maturity ladder can spread repayment across dates. It still needs to be built from actual security dates and an available cash reserve.

Make the choice with a short comparison sheet

For each candidate bill, record the initial outlay, actual maturity date, repayment amount and applicable costs. Then ask whether the money can remain invested until that date and what would happen if the spending need arrived earlier.

The practical result is a term that fits the cash schedule, with its return understood on the right basis. A yield comparison becomes useful once the timing, costs and reinvestment assumptions are clear.

• Compare the maturity yields in one auction
• Understand Treasury bill investment risks