I bought a T bill last week during its primary issue (91D020323) at Rs 98.43 per lot, indicative yield of 6.4%. Right now it is trading at Rs 98.01. Does this mean that if I manage to buy it at this price, my YTM would be close to 7.6%? I know this isn’t a huge arbitrage opportunity, but this would make T bills more attractive than FDs which would have longer maturities for the same pre-tax return (indexation benefit notwithstanding).
Am I missing something here?
(…or were a handful number of lots traded one time at an exceptional price?)
Strictly speaking, this is not an arbitrage per-se
- as the price in the secondary market was not known during primary issue.
- as no-one is still selling/buying at the primary issue price.
If you mean that sometimes some securities are available cheaper in the secondary market than their primary issue price, then yes.
(All one can say is that some factor(s) that affect the demand for T-Bills (or this specific T-bill)
has changed in the market between the date of primary issue and today)
Yes, more attractive for some folks.
However, less attractive for others.
comparing 7.5% annual returns from
a 3month T-bill vs. a 3-year FD
- upon its maturity, one needs to reinvest gains from near-term T-Bill to continue receiving gains,
- unlike the FD that would re-invest/compound each year for the entire duration of 3 years.
- FDs can be redeemed/withdrawn instantly unlike T-bills that need to be sold and settled.
- Also FDs upto 5lac per individual account in a bank are insured as well.