Shorting T-bills

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testcase

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The 3 month t-bill yield is 1 basis point. The bid ask is 2bps/1 bp. Is it possible to short the t bill and borrow at 2 bp?
 
So think about it. If I own a T-bill and you come up to me and say that you would like to borrow my T-bill and sell it short, why would I do that? I clearly think that I need to put my money in a safe place, and suddenly I am replacing a T-bill with an IOU from you?
 
ah...makes sense now. but it is possible to short treasury bonds through a simple t-bond future, right? can you also just short the underlying...the physical asset rather than the derivative (future)?

if you can short a 10 yr t bond, why can't you short the 3 month t bill? i understand the simple fact that any individual has more credit risk than the US govt, but if you can short one part of the term structure (10 yr, 30 yr, etc), why not the shorter maturities?
 
you can trade tbill futures. dunno how liquid the contract is though. eurodollar futures are the main ST rate futures contract since it reflects funding costs for market participants (hedging need).

http://www.cme.com/trading/prd/ir/13weektbills_FCS.html
 
testcase, can you explain a little what you are trying to do? I'm not sure you can short the short term treasuries directly, although I believe it might be possible, but assuming you do short them, how are you suggesting you can borrow at 2bp?

Aside from the spread differential, if the treasury price goes up your loss on the short position is offset by the gain on the long position, and the interest you get you have to pay to the owner, so it seems to me you end up net zero, unless I'm missing something.
 
Yeah, best way to short T-bills are with futures, provided you have the margin available for it. I don't know what maturities are available though, or what the liquidity is.
 
T-bill futures aren't very liquid having been replaced as rohu noted with eurodollars.

You short T-bonds directly through the repo market. You come up to me with $100,000 which I would like to borrow, so I give you a Treasury as collateral, you give me the $100K. You sell the T-bond for $100K. You then come up to me with $100K which I would like to borrow, so I give you a Treasury as collateral...(there are haircuts on all of this in the real world). Wash, rinse, repeat...

Note that if you do this 10 times, you have contracted to give me 10 T-bonds at a fixed price. If T-bond prices go down, you reverse the process and make money. If they go up, you declare bankruptcy and flee the country.
 
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