Cash Management Bill - CMB

What Is a Cash Management Bill?

The term cash management bill (CMB) alludes to a short-term security sold by the U.S. Treasury. The maturity of a CMB can go from a couple of days to three months. Not at all like other Treasury Bills (T-Bills), CMBs are typically not sold consistently on the grounds that they are possibly offered when the government has a low cash balance. In that capacity, the money raised through these issues is utilized by the Treasury to meet any temporary cash shortfalls and give emergency funding. They are ordinarily sold to institutional investors since they accompany a high least investment requirement.

Understanding Cash Management Bills

At the point when the U.S. Treasury's cash balances are down, it might have to fund-raise for a couple of days. To boost its cash reserves, it often resorts to selling unmistakable securities, which are known as cash management bills. These bills are extremely short-term debt instruments. They have maturity dates that reach from seven to 50 days, although it is entirely expected for maturities to go up to three or four months.

The cash management bill is among the most flexible instrument offered by the U.S. Treasury. That's since it can be issued when required. In fact, cash management bills can be issued on any business day with just one day's notice. This is in contrast to the standard schedule that the Treasury follows when it issues other bills, notes, and bonds, which allows the department to have lower cash balances and issue less long-term notes.

CMBs are issued in both fungible and non-fungible forms:

• A CMB is fungible when its maturity date concurs with the maturity of an existing T-bill issuance.
• On account of non-fungible CMBs, participation by primary dealers isn't compulsory for all intents and purposes for fungible CMBs or for consistently scheduled T-bills or bond issues.

These debt instruments tend to pay higher yields than bills with fixed maturities, but their shorter maturities lead to a lower overall interest expense and may eliminate interest payments entirely in certain circumstances. They have least denominations of $100 and must be purchased in increments of $100. But there's one stipulation: CMBs are normally simply open to institutional investors in light of the fact that there's generally a base purchase of $1 million required.

They might be issued before income tax payments are received or before the government needs to make a large payment or some likeness thereof. For instance, on Sept. 8, 2017, the Treasury issued $20 billion of every seven-day cash management bills set to mature on Sept. 15, 2017.

Cash management bills supplement routinely auctioned Treasury Bills and allow The Treasury to simultaneously stay below the statutory debt limit and meet its projected cash needs for some random month.

Special Considerations

Although the government doesn't typically issue CMBs on a consistent basis, it has done so routinely starting around 2020 to meet the necessities of its cash reserves following the COVID-19 pandemic. As per the Treasury, the 17-week CMB has been an ordinary offering since April 2020. Week by week issues have gone in size from $30 billion to $40 billion. The department depended vigorously on these bills after the Coronavirus Aid, Relief, and Economic Security (CARES) Act went into effect, and demand for the 17-week CMB stayed.

Highlights

• CMBs are generally meant for institutional investors due to the higher least investment requirement.
• They tend to pay higher yields than fixed-maturity bills but their shorter maturities can lead to a lower overall interest expense.
• CMBs are not sold consistently and are possibly put available to be purchased when the government's cash reserves are low.
• Maturity dates for CMBs can go from seven to 50 days but can go as high as three to four months.
• A cash management bill is a short-term security sold by the Treasury Department.